One of the most severe actions the IRS can take against you is issuing a wage levy. A wage levy allows the IRS to seize a portion of your paycheck directly from your employer, leaving you with a reduced income until your debt is paid off. Understanding how wage levies work, the process involved, and your rights can help you navigate this difficult situation more effectively.
What Is an IRS Wage Levy?
An IRS wage levy, also known as a wage garnishment, is a legal action that allows the IRS to collect unpaid taxes directly from your wages. Unlike a wage garnishment initiated by a creditor, an IRS wage levy does not require a court order. Once the IRS issues the levy, your employer is required by law to withhold a significant portion of your paycheck and send it directly to the IRS.
How Does the Wage Levy Process Work?
The IRS doesn’t issue a wage levy without warning. The process typically follows these steps:
Notice and Demand for Payment. The IRS will first send you a notice, known as a “Notice and Demand for Payment.”. This tells you how much you owe and is your opportunity to resolve the debt voluntarily.
Final Notice of Intent to Levy. If you fail to respond to the initial notice, the IRS will send Notice CP90, which is a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing” at least 30 days before the levy is issued. This notice gives you a final opportunity to resolve the debt or request a hearing.
Issuance of Levy. If you do not act within the 30-day period, the IRS will issue the wage levy to your employer. Your employer must then begin withholding a portion of your wages.
How Much Can the IRS Take from Your Paycheck?
The amount the IRS can take from your paycheck is based on the standard deduction and the number of dependents you claim. The IRS sends Publication 1494 along with the levy to your employer. This instructs your employer on how to calculate the amount exempt from the levy. Your employer will give you a Statement of Dependents and Filing Status that you must complete and return within three days. If you don’t return the statement within this period, your exempt amount will be calculated as if you’re married filing separately with no dependents (zero). If you have multiple income sources, the IRS may assign the exemptions to those other sources and levy 100% of the income from a specific employer.
Any amount above the exempted portion can be levied. For many, this can result in a substantial reduction in take-home pay. Let’s look at some examples. Let’s say you are a single filer with no dependents with weekly gross pay of $1,000. Your weekly exempt amount is around $281. This means the IRS can levy $719 from each paycheck. Now, let’s say you are a single parent of one child who files as Head of Household and has weekly gross pay of $2,000. Your weekly exempt amount is around $517. This means the IRS can levy $1,483 from each paycheck. For someone married filing jointly with two dependents and gross weekly pay of $1,500, the weekly exempt amount might be around $754. The IRS can levy $746from each paycheck.
Will the IRS Levy My Bonuses?
When a wage levy is in place, it generally applies to any regular wages, salary, and other forms of compensation, including bonuses. This means that if you receive a bonus while under an IRS wage levy, the IRS will take the entire bonus.
What If I Pay Child Support?
If you pay child support directly, rather than through wage withholding by an employer, it’s crucial to take extra steps to protect your obligations if you’re subject to an IRS wage levy. Unlike wage withholding for child support, which is typically prioritized over IRS levies, direct payments may not automatically receive the same protection. In this situation, you should immediately notify the IRS of your child support obligations and provide documentation, such as court orders, to demonstrate your required payments. You may be able to negotiate with the IRS to adjust the levy amount or even secure a release from the levy to ensure that your child support payments continue uninterrupted. Consulting with a tax professional can also help you navigate this process and safeguard your responsibilities.
What Are Your Rights?
Even though an IRS wage levy is a serious matter, you still have rights. First and foremost, you have the right to notice. The IRS must notify you in advance of its intent to levy your wages, giving you a chance to resolve the debt or appeal the decision. Next, you have the right to appeal through a Collection Due Process (CDP) hearing within 30 days of receiving the final notice. This hearing allows you to dispute the levy or negotiate alternative payment arrangements.
You also have the right to payment arrangements. Even after a levy is issued, you may be able to negotiate an installment agreement or an offer in compromise, which could result in the levy being released. Finally, you have the right to hardship consideration. If the wage levy causes significant financial hardship, you can request that the levy be released. The IRS may consider your financial situation and decide to release the levy, although you will still owe the tax debt.
How to Avoid a Wage Levy
The best way to avoid a wage levy is to address your tax debt early. If you receive a notice from the IRS, don’t ignore it. Pay the full amount you owe to avoid further action if possible. If you can’t pay the full amount, consider setting up a payment plan with the IRS. In some cases, the IRS may accept a lower amount than what you owe if you can demonstrate that paying the full amount would create financial hardship. Tax professionals can help you negotiate with the IRS and explore options that you may not be aware of.
Tax Help for Those Being Levied by the IRS
An IRS wage levy can have a significant impact on your finances, but understanding the process and your rights can help you manage the situation. If you receive a notice of a potential levy, take action immediately to explore your options and avoid further financial strain. Whether through payment arrangements, appealing the levy, or seeking professional assistance, there are ways to resolve your tax debt and minimize the impact on your income. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
Today, Optima Tax Relief Lead Tax Attorney, Phil, discusses how Optima Tax Relief can help struggling taxpayers who owe.
If you’re a taxpayer who has tax debt and has explored tax relief options, odds are you’ve come across Optima Tax Relief’s services. Perhaps you heard a commercial on the radio or read client testimonials, and wondered, “Can Optima really help me?” The simple answer is yes.
What is Optima Tax Relief?
Optima Tax Relief is America’s most trusted tax resolution firm that specializes in helping taxpayers who owe money to the IRS or state tax authorities resolve their tax problems. We offer a variety of services tailored to address different tax issues, from unpaid taxes and penalties to audits and liens.
How Can Optima Help Me?
Optima Tax Relief can help obtain the best possible tax resolution for you. This can include one or more of the following:
Offer in Compromise (OIC): Optima can help you apply for an OIC, which allows you to settle your tax debt for less than the full amount owed. We prepare the necessary documentation and negotiate with the IRS on your behalf.
Installment Agreements: For those who cannot pay their debt in full, Optima negotiates installment agreements, allowing you to pay off your debt over time with manageable monthly payments.
Penalty Abatement: Optima can request a reduction or elimination of penalties you received.
Currently Not Collectible (CNC) Status: For those experiencing severe financial hardship, we can assist in proving your financial situation qualifies for CNC status, temporarily halting collection efforts.
Lien and Levy Release: Optima works to negotiate the release of liens and levies by addressing the underlying tax debt and establishing a payment plan.
Audit Representation: Optima provides representation and support for taxpayers undergoing IRS audits, helping to ensure the audit process is handled professionally and effectively.
At the end of the day, the numbers speak for themselves. Optima Tax Relief has helped tens of thousands of taxpayers like you, resolving over $3 billion in tax liabilities for our clients. We were voted America’s #1 Most Trusted Tax Relief Firm by YouGov in 2023 and have received dozens of awards for customer service, business ethics, company culture, and community engagement.
Tune in next Friday as Phil covers a burning question, “How much do Optima’s services cost?”
The IRS typically processes tax refunds quickly, but in some cases, there can be delays. When these delays occur, taxpayers might wonder if they’re entitled to interest on their refund. The IRS does pay interest on tax refunds under specific circumstances. However, the rules governing when and how much interest is paid can be complex.
Understanding the Basics of Delayed Refunds
Interest on tax refunds is designed to compensate taxpayers for the time they are without the money they are owed. However, the IRS doesn’t start paying interest the moment your refund is delayed. There are specific timelines and conditions under which interest is paid.
Filing Deadline and Interest Start Date
For most taxpayers, the IRS must issue the refund within 45 days after the tax return is due, or the date the return was filed, whichever is later. If the IRS issues the refund after this 45-day window, it must pay interest on the refund. For example, if you filed your tax return by the typical deadline of April 15, the IRS has until May 30 to issue your refund without paying interest. If your refund is issued after May 30, interest will be added. If you file your tax return late, say on June 1, the IRS has until July 16 (45 days from June 1) to issue your refund without paying interest.
Amended Returns
If you file an amended return that results in an additional refund, the IRS typically has 45 days from the date the amended return is filed to issue the refund without paying interest. If the IRS takes longer than 45 days, interest will be paid on the additional refund amount. Imagine you filed your tax return on time, but later realized you missed a significant deduction. You file an amended return on August 1, resulting in an additional refund of $1,000. The IRS has until September 15 (45 days from August 1) to issue this additional refund.
Delays Caused by IRS Errors
If your refund is delayed due to an IRS error, and they correct the issue and issue a refund after the 45-day period, interest is paid from the original filing deadline or the date the return was filed (whichever is later) until the refund is issued.
Interest Rates on Refunds
The interest rate the IRS pays on delayed refunds is tied to the federal short-term interest rate, plus 3 percentage points. As of Q3 of 2024, the interest rate for overpayments of tax is 8% per year, compounded daily. The rate is adjusted quarterly and can vary depending on when the refund is issued. Importantly, interest paid to you by the IRS is considered taxable income. That said, you’ll need to report it on your next tax return.
Exceptions to Interest Payments
There are some situations where the IRS may not be required to pay interest on delayed refunds:
Math Errors. If your tax return contains math errors or other discrepancies, the IRS may delay processing while it reviews your return. During this period, no interest is accrued.
Injured Spouse Claims. If you file an injured spouse claim, your refund may be delayed while the IRS processes the claim. Interest on the delayed portion may or may not be paid, depending on how long the delay lasts and when the claim is resolved.
Fraud or Identity Theft Investigations. Refunds delayed due to fraud or identity theft investigations typically do not accrue interest during the investigation period.
Tax Help for Those Waiting on a Tax Refund
In summary, the IRS does pay interest on tax refunds, but only under specific conditions. Generally, if the IRS takes longer than 45 days after the filing deadline or the date you filed your return, whichever is later, to issue your refund, you’ll receive interest on the amount owed. However, exceptions exist, and the exact timing and rate of interest depend on various factors. As always, if you have questions or concerns about a delayed refund, it’s a good idea to consult with a tax professional or reach out to the IRS directly for clarification. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
When it comes to unpaid taxes, the IRS has powerful tools at its disposal to collect the debt. Among these tools is the ability to seize your assets, including your car. But under what circumstances can the IRS actually take your vehicle, and what can you do to protect yourself? Here’s what you need to know.
Understanding Tax Levies
A tax levy is a legal seizure of your property to satisfy a tax debt. Unlike a tax lien, which is a claim against your property as security for the tax debt, a levy actually takes the property to pay off the amount owed. The IRS can levy various assets, including bank accounts, wages, and personal property like cars, boats, or real estate.
When Can the IRS Seize Your Car?
The IRS doesn’t take the decision to seize property lightly. They typically resort to this measure only after several attempts to collect the tax debt have failed. Here are the general steps the IRS must follow before they can take your car:
Notice of Demand for Payment: The IRS will first send you a notice demanding payment. This is a formal request to pay the outstanding tax debt.
Final Notice of Intent to Levy: If you don’t respond to the demand for payment, the IRS will send a Final Notice of Intent to Levy and Your Right to a Hearing at least 30 days before they move forward with the levy. This notice gives you a final chance to settle the debt or appeal the levy action.
Collection Due Process Hearing: You have the right to request a Collection Due Process (CDP) hearing within 30 days of receiving the final notice. This hearing allows you to challenge the levy or negotiate a payment plan.
Asset Seizure: If you don’t respond to the final notice or if your appeal is unsuccessful, the IRS can proceed with the levy. They may choose to seize assets, including your car, to satisfy the tax debt.
Factors the IRS Considers
Before seizing your car, the IRS will consider several factors:
Value of the Car: The IRS will evaluate whether the value of your car exceeds the amount of the debt. They are unlikely to seize a car if the costs of seizing and selling it (such as towing, storage, and auction fees) are greater than the proceeds that would be applied to the debt.
Your Need for the Car: The IRS may consider whether the vehicle is necessary for your livelihood. For example, if you need the car to get to work, the IRS might decide not to seize it, though this is not guaranteed.
Other Available Assets: The IRS will typically look at other assets you own before seizing a vehicle. If you have other property or accounts that can be levied more easily or without as much hardship, they may opt for those first.
What Can You Do to Protect Your Car?
If you’re facing potential asset seizure by the IRS, there are steps you can take to protect your car and other property:
Communicate with the IRS: The worst thing you can do is ignore IRS notices. Communicate with them and try to work out a payment plan or settlement.
Request a Collection Due Process Hearing: If you receive a Final Notice of Intent to Levy, promptly request a CDP hearing. This can temporarily halt the levy process and provide an opportunity to negotiate.
Seek Professional Help: Consider hiring a tax professional, such as a tax attorney or enrolled agent, who can negotiate with the IRS on your behalf and help protect your assets.
Consider an Offer in Compromise: If you can’t pay the full amount, you might be able to settle your tax debt for less than what you owe through an Offer in Compromise (OIC).
Tax Help for Those Who Owe
Yes, the IRS can seize your car to satisfy a tax debt, but it’s typically a last resort after other collection efforts have failed. By understanding your rights and responding to IRS notices, you can take steps to protect your property and resolve your tax issues before they escalate to the point of asset seizure. If you find yourself in this situation, it’s crucial to act quickly and seek professional advice to navigate the complexities of dealing with the IRS. Optima Tax Relief has over a decade of experience helping taxpayers get back on track with their tax debt.
Did you receive a settlement for a class action or personal injury lawsuit? If you have, you could face major tax implications with the IRS. CEO David King and Lead Tax Attorney Philip Hwang provide helpful tips on how to avoid any tax time surprises and how you can navigate dealing with the IRS if you end up owing a tax liability.
