One of the most common forms of collection action taken by the IRS is tax garnishment. They have the ability to take most of your income, other than a few protected sources. If you find yourself facing a tax garnishment, then you should be aware of what sources of your income may be taken by the IRS to pay off your tax debt. This can help you to prepare yourself for the financial implications of losing these funds.
Salary and Wages
Any type of salary and wages you may have are susceptible to a tax garnishment, including commission and bonuses. The IRS will apply directly to your employer to take all of your paycheck, other than an exempt amount. This amount is determined by your filing status and number of deductions. The IRS will take the rest of your wages beyond this amount from every paycheck, whether you are paid daily, weekly, monthly, or bimonthly. The amount you are left with will be a small percentage of what you make, which could cause you to have other financial problems.
It is not just your current income that can be garnished by the IRS to pay off your tax liability. They also have the power to take most of your retirement income, including from 401Ks, IRAs, pensions, and other types of retirement incomes. Social security income is often exempt, although a certain percentage may be taken, but social security disability income is eligible to be taken. This could have far reaching implications, as you will lose some or even all of the money on which you are relying to retire.
Other Sources of Income
There are many other sources of income that can be garnished, including investment related income, such as the money you receive for rental property, stock dividends, and other assets. Spousal support or alimony is also eligible for garnishment; however, child support will never be used to pay off your tax liability. Unemployment benefits and state assistance is typically not eligible for tax garnishment, although your tax return and VA benefits are. Workman’s comp income is also typically exempt from any tax garnishment. Basically, the IRS will take any form of income it deems as beyond that necessary for daily living.
How to Protect Yourself from Tax Garnishment
If you find yourself facing tax garnishment, you do not have to give up these sources of income. Instead, you can negotiate a tax relief settlement to pay off your tax liability, including any penalties and interest, on your terms by applying for an Offer in Compromise, Installment Agreement, Currently Not Collectible, or other tax relief programs. With the help of tax professionals, you can discover the right path for you to take to become compliant once again with the IRS and not have to worry about your income being garnished because of your federal tax debt.