Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses levies and garnishments, including which assets the IRS can seize and how the IRS can garnish your wages.
A levy is a legal seizure against your assets that results from owing back taxes. In truth, the IRS can seize just about anything you own. This includes property, bank accounts, retirement accounts, some life insurance policies, and even wages. How much of your wages the IRS levies to begin with depends on a few factors. Your filing status, dependents, and how often you receive a paycheck can affect their decision.
How Much Can the IRS Garnish?
Unfortunately, the IRS has full discretion on how much of your paycheck they will garnish. However, the IRS can typically only garnish your disposable income each month that is over the exempt amount according to your standard deduction. For example, single filers have a standard deduction of $13,850 in 2023. Let’s say a single filer with no dependents gets paid weekly. Their take home pay after the wage garnishment would be about $266 ($13,850 divided by 52 weeks). However, if you have dependents, or use a higher standard deduction, this amount will increase.
How to Remove Levies and Garnishments
Most taxpayers who have levies and garnishments just want to know how to get them removed. The simplest and most obvious answer is to pay the tax liability in full. However, sometimes this isn’t an option. If not, you can set up an installment agreement with the IRS or try to claim economic hardship. In any case, taking swift action is crucial. Additionally, having a team of tax professionals in your corner can help ease the process.
Don’t miss next week’s episode where Phil will discuss tax scams. See you next Friday!
If You Need Help Getting a Levy Released or Garnishment Removed, Contact Us Today for a Free Consultation
Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses IRS enforcement, including the statute of limitations and how it might affect your credit report.
Did you know the IRS has a certain amount of time to collect your tax debt before it expires? How long? Well, the simple answer is 10 years, but several factors can pause this timeline. For example, filing for bankruptcy, living abroad, applying for an installment agreement, submitting an offer in compromise, applying for innocent spouse relief, applying for a taxpayer assistance order, requesting a collection due process hearing, serving in the military, or being sued by the IRS can all pause the 10-year collections period.
Many also wonder if IRS enforcement can affect your credit. The IRS can file a Notice of Federal Tax Lien, or a priority claim over all of your assets. While this notice does not show up on your credit report directly, it does become public information that creditors can access through supplemental reports. This can affect your access to credit, business opportunities, and even employment.
Join us next Friday as Phil will answer your questions about levies and wage garnishments!
If You Are Being Hit with IRS Enforcement, Contact Us Today for a Free Consultation
Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses penalties and interest, including the most common penalties and how interest rates are calculated.
Failure to File Penalties
Owing the IRS is much more than just owing a tax balance. The IRS also charges penalties and interest, the most common penalties being the Failure to File and Failure to Pay. The Failure to File penalty is charged on tax returns filed after the tax deadline or tax extension deadline without a reasonable cause. It accrues at a rate of 4.5% per month, beginning after taxes are due. For example, if you filed for a tax extension, you have until the usual October 15th deadline to file before penalties and interest begin to accrue. In 2023, the deadline is October 16th. If you did not file an extension, the deadline is April 15th each year before the Failure to File penalty and interest begin to accrue. In 2023, the deadline was April 18th.
Failure to Pay Penalties
The Failure to Pay penalty, on the other hand, accrues at 0.5% per month for every month or partial month that a tax balance remains unpaid. The day the Failure to Pay penalty begins to accrue is dependent on whether you filed a tax extension. If you file a tax extension, the Failure to Pay penalty will begin to accrue after the October tax deadline. If you do not file an extension, it will begin to accrue after the April tax deadline.
IRS Interest Rates
The interest rates on these penalties are calculated based on the federal short-term rate, plus an additional 3%. Interest compounds daily until the balance is paid in full. The interest rates for underpayments in the first quarter of 2024 are as follows:
7% for individual underpayments
9% for large corporate underpayments
Interest rates are determined each quarter. You can find the most up to date news on quarterly interest rates on the IRS website.
Next week, Phil will discuss IRS enforcement. How long does the IRS have to collect back taxes? Can back taxes affect your credit score? Stay tuned for “Ask Phil” next Friday!
If You Are Being Hit with IRS Penalties and Interest, Contact Us Today for a Free Consultation
Welcome to our Ask Phil series, where each week our lead Tax Attorney, Philip Hwang will be answering your questions about various tax topics such as IRS enforcement, liens and levies, tax scams, and more. With Phil’s extensive background as a tax attorney, you won’t want to miss this valuable information!
Today, Phil discusses liens, including when to worry about them and how to get them removed.
What is a Tax Lien?
A lien is a legal claim against all of your property when you fail to pay a tax debt. A lien is private information only known to you and the IRS. That is until they file a Notice of Federal Tax Lien. This essentially means that the IRS alerts all creditors that they have the first claim over all of your assets, from property to vehicles to bank accounts. At this point, the federal tax lien becomes public information, meaning that anyone can find out about your tax debt. This can affect your access to credit, business opportunities, and even employment.
How to Get a Lien Removed
Once a federal tax lien is in place, the best way to get it removed is to pay your tax debt in full. Once the balance is paid in full, the IRS typically releases the lien within 30 days. However, sometimes other options may be available. For example, a process called lien subordination allows creditors to outrank the IRS. This basically makes it possible for you to refinance your home. It’s important to note that this does not remove the tax lien attached to your property. To find out if you’re eligible for lien subordination, you should file IRS Form 14134, Application for Certificate of Subordination of Federal Tax Lien, with the help of a knowledgeable tax professional.
Tune in next Friday as Phil covers the important topic of penalties and interest!
If the IRS Has a Lien on Your Property, Contact Us Today for a Free Consultation
