If you owe money to the IRS, they will resort to any means possible to get payment from you. One method is through a wage lien or garnishment. That is when the IRS can take your all or part of your monthly take-home pay.
Nobody wants to be in that position — neither the debtor nor the employer. It is embarrassing for the debtor and a pain for the employer to have set up the process. However, there are ways to get out of this situation.
Keep reading and I will explain about wage garnishments and levies and what you can get them released. It is not easy, but it can be done. I will also outline how the IRS prioritizes who gets paid back, and in what order, from your garnished wages. Guess who is at the top of the list?
How to Fight Back
Fighting a wage levy involves taking the steps necessary to ensure your assets are protected. However, when there is an outstanding tax liability for which you are responsible and when you do not satisfy the debt, the IRS will pursue action that may involve attaching an interest in your paycheck — through a wage levy.
With this in mind, a wage levy is a legal seizure of property to satisfy a debt. If you do not pay your taxes, the IRS may seize and sell any type of property belonging to you to satisfy the tax liability.
The process for attaching an interest to your wages is three-part. The agency first secures a claim (lien) on the taxpayer’s property and follows this up with a levy. The IRS “may seize and sell any type of real or personal property that you own or have an interest in” (IRS.gov, “Levy,” 5/31/2013).
Second, the IRS then seizes and sells the property you hold; for example, your car, boat, and/or house can be sold. Last, the IRS levies against other types of property such as your “wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions” (“Levy”).
An employer has one full pay period to send any funds from the employee’s wages. The full pay period will come after the employer receives Form 668-W, Notice of Levy on Wages, Salary and Other Income from the IRS. At this point, the employee can still contact the IRS to discuss the release of the levy and to resolve their tax liability. These procedures are not exhaustive, but provide insight into how your wages may be affected in the face of an outstanding tax liability.
With all of this in mind, when it comes to wage levies, the most important strategy for avoiding the levy is to pay the taxes owed. When the IRS sends a Notice and Demand for Payment, respond to that notice with a payment.
In addition, when the IRS sends the Final Notice of Intent to Levy and Notice of Your Right to a Hearing, which is the official and final levy notice, respond to the notice(s) to ensure levy proceedings do not commence against your wages.
In cases where a levy may be causing immediate financial hardship, the IRS allows for the releasing of a wage levy on a legal basis. For example, the IRS will submit a notice of levy to the taxpayer’s employer. However, “the taxpayer responds and shows that the notice of levy prevents her from paying for basic necessities for her family.
Because the levy is causing an economic hardship, [the IRS allows the levy to be released immediately], so the employer will not send a levy payment on the next pay day” (IRS.gov, “Part 5. Collecting Process, Chapter 11. Notice of Levy, Section 2. Serving Levies, Releasing Levies and Returning Property,” 9/9/2013).
However, a levy release does not imply exemption. A taxpayer would still be responsible for paying the tax balance owed. The IRS will just work with the taxpayer to pay off the balance (IRS.gov, “What if a levy on my wages is causing a hardship?” 9/9/2013).
Taxpayers eligible for wage levies may also avoid the levy by requesting a Collection Due Process (CDP) hearing with the IRS Office of Appeals. The request is filed with an IRS manager listed on the notice. “You must file your request within 30 days of the date on your notice” (“Levy”). The IRS allows some issues eligible for discussion at the hearing.
A notice of levy that violates IRS regulations is subject to be released. An example of a violation would be the issuing of a levy during the course of the taxpayer’s CDP hearing.
If you can prove that you paid the owed tax before the IRS sent the wage levy notice, then the presiding officer may determine the case in your favor.
You may avoid the tax levy by having the case decided in your favor if the officer determines that the IRS “assessed the tax and sent the levy notice when you were in bankruptcy” (“Levy”); there is an automatic stay initiated during bankruptcy when an individual files the bankruptcy petition.
“Section 362(a) of the Bankruptcy Code (Title 11) prohibits levy on the property of a taxpayer in bankruptcy. A levy on this property is generally illegal and must be released” (IRS.gov, “Part 5. Collecting Process, Chapter 11. Notice of Levy, Section 2. Serving Levies, Releasing Levies and Returning Property,” 9/9/2013).
Lastly, a collections due case may be decided in your favor if it is determined that the IRS made a procedural error in assessment, the time to collect the tax has expired before the IRS sent the notice of levy, you did not have enough time to dispute the assessed liability, you want to discuss collection options, and/or you wish to offer a spousal defense. It is at the conclusion of the hearing when the Office of Appeals issues a determination. For more information, refer to IRS Publication 1660, Collection Appeal Rights (CAP).
 Automatic stay, or automatic injunction, falls under section 362 of the U.S. Bankruptcy Code and it is defined as a process whereby actions by creditors against a debtor are halted as a result of the debtor filing for bankruptcy protection. The automatic stay provisions work to protect the debtor against judicial proceedings, actions to obtain the debtor’s property, actions that will enforce a lien against the property, and set-off of indebtedness that is owed to a debtor before the commencement of a bankruptcy proceeding.