An IRS wage garnishment or NYS income execution can cripple your finances. You depend on your paycheck being there like clockwork but...
You've owed back taxes to the IRS or New York State Department of Taxation for years and didn't pay much attention to the notices that you were being mailed.
One day, you go to work and your employer informs you that they have received a notice of levy on wages, salary and other income from the IRS or an NYS income execution.
What you need to do next?
In order to stop the IRS or NY tax levy, the underlying tax problem must be fixed.
The below article by tax attorney Charles Rosselli explains the ins and outs of a tax levy.
Tax attorney Charles Rosselli helps individuals and business solve IRS and NY tax problems on a daily basis. Take the first step and contact us to see if we can be of help.
We can assist you regardless of location.
What is an IRS Notice of Tax Levy
A notice of tax levy is written legal notice to your employer or financial institution that you owe back taxes to the IRS and that it their legal obligation to forward that money to the IRS to satisfy your tax liability.
The Internal Revenue Service, unlike any other collection agency, does not have to go to Court to get a judgment so that it can issue a levy.
Section 6330 of the Internal Revenue Code governs the tax levy process.
The IRS will begin the process by sending you a series of notices.
The goal of each IRS notice is to get your attention.
If you are about to be levied, you should contact us right away to see how we can be of help..
One letter from the IRS will be titled Notice of Intent to Levy.
It will usually have CP504 in the upper right hand corner.
The letter will state that the IRS has the intent to seize your state tax refund as well as other property.
It will also state the amount due and for what years you owe back taxes.
Wages, commissions, bank accounts, and personal assets (car and home ) are subject to levy.
If the CP504 letter does not get you to call the IRS, the second and more important letter that you will receive is usually a letter that has LT11 or LT 1058 in the upper right hand corner.
This letter will also state the intent of the IRS to levy your bank accounts, income, and assets.
The reason why this letter is more important is that it affords you Collection Due Process Appeal rights, that if properly exercised in a timely manner, can stop the tax levy.
Please note whichever letter gives you the rights to a hearing is the most important.
Also, always open your mail, especially mail from the IRS as soon as you receive it.
Types of income the IRS can levy
Pursuant to Section 5.11.5 of the Internal Revenue Service Collection Manual, the IRS can seize your wages or any other source of income to satisfy an unpaid tax liability.
Under the tax law, the IRS can direct your employer to withhold a certain percentage of your earnings and send it to the IRS on an ongoing basis to satisfy your tax liability.
If you are a W-2 employee, your employer will receive a Notice of Levy on Wages, Salary, and Other Income.
The IRS can seize your salary as well as bonuses, overtime time, etc. However, it is not just limited to employer – employee relationships.
If you are self- employed or an independent contractor, your commission income and/or any receivables will be subject to levy.
For example, if you are a real estate salesperson and you are owed a commission from the sale of a property, the IRS can legally require that your commission and future commissions be sent to the IRS until such time that your tax liability is satisfied.
Also, if you are retired or receiving benefits, income from Social Security; retirement benefits, pension income, etc., a certain percentage may be subject to garnishment to satisfy a back tax liability.
A FORM 688- W is issued by the IRS to levy your retirement income.
How much can the IRS garnish?
The IRS can take a large percentage of your income.
The amount that is exempt depends upon your filing status, how often you are paid, and the number of exemptions that you have.
Typically, only about 10% to 20% of your wages will be exempt from levy and the rest of your income will have be turned over to the IRS.
A percentage of your wages or income is exempt from garnishment pursuant to Internal Revenue Code Section 6334 (a) (9).
In other words, the IRS cannot take a certain percentage of your income.
Also, the amount that a taxpayer must pay court ordered child support is exempt from levy as well as unemployment income is not subject to garnishment.
Upon receipt of the wage garnishment notice, your employer will give a Statement of Exemption and Filing Status, which will have to be completed and returned to your employer within 3 days.
If you fail to return the statement to your employer within 3 days, your amount exempt from the tax levy will be determined as if you are married filing separately with one exemption.
NYS Income Execution
A court order is not required to issue a NYS tax levy also know as an income execution.
If you owe back taxes to New York State, the New York State Department of Taxation will continue to strangle your finances until the tax liability is resolved.
Your bank account is also subject to levy, up to the entire amount of the NYS tax liability, including, penalties and interest.
NY may also issue a tax warrant to protect its interests in case your default on the income execution.
A tax warrant is a formal legal action that is filed in your county clerk’s office.
It becomes a public record and can adversely affect your credit.
A tax warrant informs you that New York State can collect your tax liability through an income execution; seizure of your property or bank levy.
Please note New York State also has the power to suspend your driver’s license under certain circumstances if you do pay your back tax obligations.
Why Did the IRS and NYS Levy My Pay?
The short answer is that the IRS and the New York State Department of Taxation and Finance is looking for the easiest way to collect the tax liability and the information about your source of wages is easily accessible to the IRS and NYS.
Here’s how:
Your employer is legally obligated under the tax law to send a W2 to the IRS for each employee.
If you are self employed or work in sales, you are likely issued a Form 1099- MISC from the company that pays your commission.
These forms are sent to the IRS every year so that the IRS can cross check that the income that you report on your income tax returns is accurate.
New York State also has access to this information.
As such, the IRS and New York State Tax Department knows where you work and it is the low hanging fruit to collect the tax liability.
IRS & NYS can garnish multiple sources of income
If you have multiple sources of income, the IRS or NYS tax levy is not limited to one source of income.
For example, if you work full time for your employer and you also do part- time work, both sources of income are subject to levy.
An IRS wage garnishment & NYS income execution can last a long time
The tax levy will not be lifted by the IRS or New York State until such time that the tax liability is satisfied or resolved in some manner.
Interest and penalties compound daily on your tax liability so your tax liability continues to grow.
If you file income taxes jointly with your spouse, both sources of income are subject to garnishment as you are both deemed responsible.
Stopping an IRS or NY wage garnishment
Since an IRS or New York wage garnishment is the result of your underlying back tax problems, stopping the wage garnishment will involve remedying the entire tax liability issue, once and for all.
Depending upon the type of notice that you received and when you received, we may be able to appeal the wage garnishment.
The first step is to contact us for a detailed review of your tax situation so that we determine the best resolution option.
IRS or NY Bank Levy
A notice to take money from your bank account as a result of a tax liability is called a bank levy.
This type of tax levy must be re-issued to the bank or financial institution every time the IRS or New York State wants to take money from your bank account.
The IRS or State will commonly send a levy notice to your bank by mail.
Be warned that if you have a joint bank account with someone with a tax liability, your bank account will be subject to the IRS or NYS tax levy.
You will then have to prove to the IRS or State that the monies in the bank account did not belong to the joint account holder.
This is not an easy task as the IRS or NYS may not be willing to release the bank funds.
Social Security & IRA(s)
The following retirement assets are subject to a tax levy by the IRS and NY Tax Department:
IRA(s)
You have worked hard and have contributed to your 401(k), IRAs, as well as Social Security.
You may have been looking forward to enjoying your retirement but if you have an IRS or New York tax liability, there is a wrinkle to the comfortable golden years that you may expect.
Once you are vested in your retirement vehicles, it is possible that the IRS and NY Tax Department can levy theses accounts to satisfy any tax liability you accrued, plus penalties and interest.
Social Security
If you are at the age where you are receiving Social Security and you owe back taxes, the IRS can levy up to 15% of your monthly social security benefits until such time that the tax liability is paid off.
Asset Seizures
The seizure of assets like a home, car, or business assets is not the first action that is taken by the IRS or New York State to collect the back taxes that are owed.
The IRS or State will first attempt to obtain back taxes owed through such means as garnishments, income executions, and bank levies as detailed above.
With regard to looking to obtain assets, the IRS and State will look to see if there is equity in the asset and your ability to borrow from the asset as a means to obtain back tax
In certain instances involving the sales tax liability of a business, New York State will seize the business assets to satisfy the back tax liability.
Also, the IRS and New York Tax Department will seize income producing real estate or force the sale of the property in high liability matters.
Solving Your Tax Problem [ the first step ]
It is our goal to protect you and solve your tax problems.
If you receive a letter from the IRS or NYS your employer regarding a wage garnishment or income execution, it is important that you contact us as soon as possible.
