The IRS Is Taking Your Paycheck: What to Do This Week

Payroll called you in, or your check just came in far smaller than it should have. Your employer received a notice from the IRS and is now sending most of your pay to the government. You still have rent due on the first.

A wage levy is one of the most disruptive things the IRS can do, because it does not stop on its own. But it also has rules, and some of them protect you. Here is what to do, in order, this week.

What a wage levy is

The IRS serves Form 668-W, Notice of Levy on Wages, Salary, and Other Income, on your employer. Unlike a bank levy, which takes a one-time snapshot, a wage levy is continuous. Section 6331(e) of the Internal Revenue Code says its effect continues from the date it is first made until it is released under Section 6343. According to the Internal Revenue Manual, "wages" for this purpose includes fees, bonuses, commissions and similar pay.

The IRS does not take every dollar. Section 6334(a)(9) exempts part of your pay, and the amount depends on your filing status and the number of dependents you have.

How the exempt amount is figured

Under Section 6334(d), the exempt amount is based on your standard deduction for your filing status plus an amount for each dependent, divided by 52 for a weekly paycheck. While the deduction for personal exemptions is zero, Section 6334(d)(4) supplies the per-dependent figure instead, and that figure is adjusted for inflation every year. Pay that is not weekly is prorated so you end up with the same total exemption over time.

You do not have to do the math yourself. The IRS sends Publication 1494, Tables for Figuring Amount Exempt From Levy on Wages, Salary, and Other Income, with the levy. Your employer uses those tables. The figures change each year, so make sure your employer is using the current edition.

Two other protections are worth knowing:

• Court-ordered child support. Under Section 6334(a)(8), if a court judgment entered before the levy requires you to pay support for minor children, the amount needed to comply is also exempt.
• Take-home pay. IRS Policy Statement 5-29, as described in the Internal Revenue Manual, generally limits a wage levy to your usual take-home pay. Payroll deductions you already had when the levy arrived are generally allowed to continue, though very large voluntary deductions can be disallowed.

What to do this week, step by step

1. Return the statement of filing status and dependents within three days. Form 668-W includes a statement for you to fill out. According to the Internal Revenue Manual, your employer gives it to you to complete and return within three days. If it is not returned by then, the exempt amount is figured as if you were married filing separately with no dependents. That is usually the smallest exemption possible. Use your actual filing status and dependents, not your W-4. The statement is signed under penalty of perjury, so be accurate.
2. If you missed the three days, file it now anyway. The Internal Revenue Manual says you can give your employer the statement later to change the exempt amount. You can also file an updated one if your filing status or dependents change.
3. Check your notices. Find the final notice that came before the levy, such as an LT11, Letter 1058 or CP90. If it is dated less than 30 days ago, you may still request a Collection Due Process hearing. If more than 30 days have passed, an equivalent hearing may be available within one year of the notice. See the final notice guide.
4. Prepare a financial statement. The IRS will want to see your income, assets and necessary living expenses, usually on Form 433-A or Form 433-F. Gather pay stubs, bank statements, your lease or mortgage statement, utility bills, car loan and insurance, and medical costs.
5. Call the IRS and ask for a release. Use the number on the levy. Explain which ground for release applies to you (see the next section) and offer your financial information.
6. Get the release in writing to your employer. When the IRS releases a wage levy, it uses Form 668-D, Release of Levy/Release of Property from Levy. Your employer should keep withholding until it receives that release. Ask the IRS to send it, and confirm with payroll that it arrived.
7. Escalate if needed. If the collection employee will not release the levy, ask for a manager and consider the Collection Appeals Program. If the levy is causing financial hardship and you cannot get it resolved, contact the Taxpayer Advocate Service using Form 911.

The legal grounds for release

Section 6343(a)(1) requires the IRS to release a levy when, among other reasons:

• The levy is creating an economic hardship due to your financial condition (Section 6343(a)(1)(D)). Treasury Regulation 301.6343-1(b)(4) says this applies when the levy leaves an individual unable to pay reasonable basic living expenses. The IRS considers your age, employment, dependents, the cost of necessities like food, housing, medical care and transportation, the cost of living where you live, and any extraordinary circumstances. It does not cover an affluent or luxurious standard of living, and you must act in good faith.
• You have entered into an installment agreement under Section 6159, unless the agreement provides otherwise (Section 6343(a)(1)(C)).
• Release will help collect the tax (Section 6343(a)(1)(B)).
• The tax is paid or the collection period has expired (Section 6343(a)(1)(A)).

Section 6343(e) adds a specific rule for wage levies: if the IRS agrees with you that the tax is not collectible, it must release the wage levy as soon as practicable.

For many people, the realistic path is to show the IRS what you can actually afford, propose an installment agreement or ask for currently-not-collectible status, and request release as part of that resolution. The IRS's own manual says a continuous levy should not be used as an unofficial installment agreement.

Will I lose my job over this?

It is a common fear. Federal law, 15 U.S.C. 1674, says an employer may not fire an employee because the employee's earnings have been garnished for any one debt. The Internal Revenue Manual says that firing an employee to avoid handling a levy might violate that law, and that the Department of Labor's Wage and Hour Division, not the IRS, decides whether it did. If your employer threatens you, that is the agency to contact.

What not to do

• Do not skip the three-day statement. It is the fastest way to keep more of your pay.
• Do not quit your job to stop the levy. The tax does not go away, and the IRS can levy a new employer.
• Do not claim dependents you do not have. The statement is signed under penalty of perjury, and the IRS can disallow dependents.
• Do not let it run on autopilot. The levy continues until released. Waiting only means more paychecks reduced.
• Do not ignore other income sources. If you have a second job or other income, the IRS may tell the second payer not to allow any exempt amount.

Other levies to watch for

Where there is a wage levy, a bank levy often follows. Read the bank levy guide so you recognize it. If you also receive Social Security, see how the IRS levies Social Security benefits. For a full overview, start with the first 24 hours guide.

Getting the levy lifted

A wage levy can often be released once the IRS has accurate financial information and a workable plan in front of it. Putting that package together quickly is what shortens the number of reduced paychecks. The Law Offices of Darrin T. Mish, P.A., in Tampa, focuses on IRS collection problems, including wage levy releases. You can reach the firm through GetIRSHelp.com or at (813) 229-7100. Bring the levy paperwork, your recent pay stubs and your monthly bills.