How to Calculate Wage Tax Levy

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As an employer, when you receive a notice of levy from the federal government, you'll need to calculate the amount of the employee’s pay that can be withheld each pay period to satisfy the levy. The IRS exempts a certain amount of wages from withholding. To determine the exempt amount for an individual employee, you will need to know the employee’s W-4 marital status and allowances, as well as your payroll frequency.

Subtract taxes and existing child support garnishments from the employee’s gross pay.

Subtract all voluntary deductions already being withheld at the time the federal levy is received.

Look up the amount exempt from levy in lRS Publication 1494. First locate the table for the employee’s W-4 marital status. Once you have found the correct table, find your payroll frequency in the first column and read across to the column for the number of allowances the employee claims on Form W-4.

Subtract the result in Step 3 from the result in Step 2. The remainder is the amount you should withhold each pay period for the levy. Continue withholding this amount from each paycheck until the levy is satisfied or the IRS sends you a Form 688-D to release the levy. The IRS will send a notice of intent to levy directly to the employee.

Tips

  • Do not recalculate the amount exempt from levy if the employee changes their voluntary deductions or W-4 elections after the levy is in place,

Warnings

  • Follow the instructions on the levy you received, as federal law often changes.

References

About the Author

Laurie Marie has a Bachelor of Science degree from San Francisco State University in business/accounting. She is a payroll industry veteran who assists large corporations as an independent payroll consultant. She specializes in writing payroll, consumer and lifestyle topics. Her articles have been published in the American Payroll Association Paytech magazine and on eHow.

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