Wage Garnishment and Levy

It is important to understand that levy, garnishment, or wage attachment are actually all the same thing. When the IRS files a levy it is as a last resort. Communications between the taxpayer and the Service has ceased and the IRS has no alternative but to employ additional efforts to collect. The levy is a demand made by the IRS on a third party; an employer, a bank, a financial or securities firm or really anyone else they can locate that has possession of assets owned by the taxpayer who has failed to remit taxes due.

The most common type of levies or garnishments are on salary and wages, and bank accounts held by the tax payer.

There are differences in the nature of the levies and the way they are administrated on these asset classes.

Wage levies are ongoing. Once the employer receives the levy he is obliged to continue to withhold wages until the levy is satisfied or the levy is released, whichever occurs first.

As of this writing, the IRS may withhold all wages due above $3.83 per hour for a single individual with no dependents. That is far below the minimum wage. One must note, however, that the taxpayer is liable for income tax on the full amount of wages paid even though some wages were withheld.

As with a bank levy, the employer is obligated to hold the funds until 21 days from the date of levy has expired, not counting the day the levy was received and implemented. In the instance of a bank levy on a time deposit, the bank must deduct the 10% penalty for early withdrawal if it applies and remit the balance to the IRS. In essence, the IRS can break into your certificate of deposits or other time deposits and take the money while the bank assesses the penalty to you. It is very difficult to retrieve funds impounded by the employer or financial institution. It can be done, but in most cases that will require the intervention of the Taxpayer Advocates Office.

The levy will be satisfied and the process is completed when all tax, penalty and interest is paid if full, or when the IRS withdraws or releases the levy order, whichever comes first. The levy order may be withdrawn when the Service is satisfied the taxpayer is attempting to comply with his/her tax obligations. Compliance with that tax obligation may be achieved by paying the tax, entering into an installment agreement, submitting an Offer in Compromise or being placed in non-collectible status (because the taxpayer does not have enough money to pay the back taxes). A levy may result in the individual being unable to make other important payments such as home loan, car payments or child support obligation. As a result, any documentation received from the IRS or any tax authority that indicates a levy or seizure of assets should be given immediate attention.

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