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IRS Wage Garnishment & You

June 9, 2019

Back in December, we discussed garnishments in our blog. As you may recall, garnishments are legal orders which allow a creditor to forcibly seize assets from a debtor. Or, in legal terminology, they allow a plaintiff to forcibly seize assets from a defendant. In the vast majority of cases, garnishments involve seizing wages directly from the employer of the debtor. This is referred to as a wage garnishment. Wage garnishment is very common, but garnishment can also involve seizing property from another source. Here at Mackay, Caswell & Callahan, we deal with garnishments related to back tax debt on a regular basis. There are rules and regulations which pertain specifically to garnishment for IRS tax debt. Grappling with all of the ins and outs of wage garnishment is no easy task. This is true both for IRS wage garnishments for tax debt and of other types of debt as well. 

In this post, we will discuss a few of the finer points about garnishments here in the U.S. Hopefully, the facts discussed today supplements the information we’ve already provided about these legal orders. If you find yourself slapped with a garnishment order, the last thing you want to do is panic. Instead, keep you cool and reach out to a qualified tax professional for assistance.

Common Reasons for Garnishment Orders 

There can be many, many reasons as to why a garnishment order may be pursued. Or, to put it differently, there can be many kinds of debts which can ultimately lead to a garnishment order. However, the debts which most regularly lead to garnishments are child support, federal student loans, unpaid court costs and, of course, unpaid taxes.

Garnishment Can Negatively Impact Credit Score 

Many people assume that garnishments merely affect the assets of the debtor and nothing else. But this is a mistaken assumption. Garnishments also can affect a debtor’s credit score. This makes intuitive sense, because garnishments are typically only obtained as a “last resort;” that is, it’s a measure to take when other measures have been exhausted. Garnishments are in some sense demonstrating the ability of a given person to repay his or her obligations. The impact of an IRS wage garnishment order on a person’s credit score can’t be precisely predicted in every case. But in most cases, it’s comparable to other significant negative events, such as bankruptcies or tax liens. 

Some States Have Wage Garnishment Limits

In almost all states in our country, there are no restrictions on garnishments. This means that virtually any creditor or plaintiff can attempt to satisfy a debt via a garnishment order. However, there are currently a few states which do have limitations on wage garnishments. Currently, Pennsylvania, North Carolina, South Carolina and Texas have heavy restrictions on these garnishments. In these states, a person’s wages cannot be subject to garnishment except to satisfy a short list of specific types of debt. Tax debt, federal student loans, child support and court-ordered fines may still be satisfied via wage garnishment. But any other type of debt can not be settled with a wage garnishment order. The purpose of this is to protect the ability of citizens to take care of their basic financial obligations and living necessities. 

Minnesota and Florida also impose restrictions on wage garnishments, but the restrictions are a bit less severe than in the other four other states.

There is a Federal Limit on IRS Wage Garnishment

As one might expect, if a person’s wages do become subject to garnishment, there’s a limit on the percentage of income which can be taken by the creditor. The federally imposed limit is the lesser of two amounts. The amounts are (1) 25% of disposable earnings; and (2) the amount by which a person’s weekly wages exceed 30 times the federal hourly minimum wage. Creditors cannot just take a huge chunk of a debtor’s paycheck every week. Rather, the debtor can keep a certain portion of his or her earnings to cover necessary expenses. Some states have their own limits on garnishments which are even more favorable to debtors. In these states, debtors can keep a higher percentage of their earnings than is mandated by federal law.

Employers Cannot Terminate an Employee Due to Garnishment

This fact will probably come as a relief to many readers. Many people worry about how an employer may view someone with a wage garnishment order. Understandably, many are concerned that this will negatively reflect on them. Their fear is often that their employer may either demote or terminate them in response. As it turns out, the law protects employees from termination specifically due to a garnishment order. In other words, your employer cannot just fire you if, for example, you receive an IRS wage garnishment. Instead, your termination would have to have some other, independent justification underlying it. Violations of this law are punishable with a fine of $1,000 and up to one year in prison.

Got an IRS Wage Garnishment? Call Us!

At Mackay, Caswell & Callahan, P.C., we’re here to help our clients resolve their financial issues and rebuild their future. We deal with a variety of tax related cases, but focus on tax debt resolution. As we’ve seen, our law has many protections built into it for the benefit of citizens. But, even though that’s true, IRS wage garnishment orders can still be quite intimidating. If you receive a garnishment, please don’t hesitate to reach out to us. Our New York City tax attorneys will be happy to assist you with your issue.

Image credit: Creditdebitpro 

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