The IRS has a plethora of ways to collect taxes from individuals who refuse to pay their taxes and refuse to communicate with the IRS, including property levies, wage garnishments and bank account seizures. In extreme cases, the IRS can even throw delinquent taxpayers in jail for unpaid taxes. Remember Al Capone and Wesley Snipes?
The Tax Collection Process
The IRS must follow specific procedures in order to legally collect back taxes. First, there must be a federal tax form on file with the IRS. I always file my own taxes using online tax software and e-file services. This costs a little bit more than filling out the paper forms and utilizing the USPS, but I want to make sure that all the math on all my forms is correct.
If I refused to file my taxes, the IRS would eventually fill out a tax form for me and submit it on my behalf. This usually results in owning more taxes than necessary because the IRS does not take into consideration specific tax deductions, including out-of-pocket medical expenses, business expenses and certain credits and deductions. When the IRS fills out an alternative tax form, it almost always results in owing money to the IRS.
Once the IRS has a form on file, they will send the taxpayer a letter stating the amount of taxes owed and the demand for immediate payment. The IRS also adds late fees and interest onto any unpaid taxes after the tax deadline, usually April 15th. This results in owning the government even more money. Thirty days after that final notice, the IRS will begin harsh collection procedures, including wage garnishments.
How Bad Is A Wage Garnishment?
The IRS wage levy is far worse than a normal wage garnishment. The IRS is not limited in the amount of money they can take from an individual's paycheck. They are only limited in the fact that they have to leave the taxpayer with a certain amount of money each day, week or month, depending on how often the individual gets paid.
Single Taxpayers
Single taxpayers with two exemptions (themselves and one child) are allowed to keep $53.46 if they are paid daily, $267.31 per week, $543.62 biweekly, $579.17 semimonthly and $1,158.33 if they are paid once a month. For a minimum wage employee making $7.25 per hour and getting paid weekly, that individual would get to keep $267.31 of their paycheck after normal taxes and deductions. The remaining $22.39 would go to the IRS for back taxes, and this would continue for as long as it took the IRS to collect the full amount of the back taxes. For an individual who owed $500 in back taxes, they would have to endure 23 weeks of garnishments.
Married Filing Jointly
For married taxpayers filing jointly with one exemption, the IRS would allow them to keep $61.92 per day, $309.62 per week, $619.23 biweekly, $670.23 semimonthly and $1,341.67 per month. This means that if a married couple working full time at a minimum wage of $7.25 could expect to have the IRS take $278.38 per week. For couples making more money, say $1,600 per week, the IRS would take $1,290.38 per week until the entire tax bill is paid in full.
Singles and married couples get to keep more of their paychecks for each qualifying dependent, but the garnishments are still steep since the IRS does not go by a percentage of income. They simply leave the individual, couple or family with a certain amount of income before taking the rest to satisfy the tax debt.
Stopping A Wage Levy
The only way to stop a wage levy is to communicate with the IRS, and the sooner the communication happens, the better. It's best to start calling the IRS the minute the first tax bill is received. This is how I handle all my back taxes. When I receive the first letter from the IRS, I call the IRS and explain my situation. The IRS isn't necessarily out to cause individuals and families undue financial hardship, but the tax money must be paid and arrangements to pay the tax bill must be made and honored.