If you owe someone money and they take you to court and win, they can sometimes get a court order to garnish your wages. That means that your employer will have to set aside a portion of your wages to provide to the creditor, and you'll never see that portion of your income on your paycheck.
There is no wage garnishment tax deduction that can automatically reduce your income tax if you have wages garnished. However, if your wages are being garnished to pay a tax-deductible expense, like medical debt, you may be able to deduct those payments.
How to Handle Wages Garnished on a Tax Return
If you have your wages garnished to settle a debt, that pay is still legally yours, so you can't simply ask the Internal Revenue Service to deduct it from your income or ask for a refund of garnished wages on your taxes. It's effectively the same as if you received your paycheck and then paid your creditor.
On the other hand, if your wages are being garnished because you failed to pay for something tax deductible, the garnished amount may itself be tax deductible. For example, if you are being garnished to pay a medical bill, you may be able to apply the garnished amount toward the medical and dental expense deduction, which allows you to deduct medical expenses above 7.5 percent of your adjusted gross income, provided you itemize your tax deductions.
If the debt is business related, you may be able to deduct the payment as a business expense, provided you use the cash method of accounting rather than the accrual method. That means that you claim business income and expenses as the money is received or paid rather than when they are first incurred.
It may be worth consulting an accountant or tax lawyer to understand how much, if any, of your garnished wages are deductible from your taxes.
If the IRS Is Doing the Garnishing
If you fail to pay your taxes, the IRS can put a levy on your various assets and on your wages. That allows it to seize money from your bank and other accounts and take at least a portion of your income. Generally some of your income is exempt based on the standard deduction and other exemptions you are due.
Naturally, income paid to satisfy a prior tax debt to the IRS isn't tax deductible from your current year's tax bill, though it does help to satisfy previous years' taxes.
Tax Law Changes in 2018
As of 2018, certain miscellaneous itemized deductions, such as employee business expenses, are no longer available to be claimed on your federal taxes. Additionally, the standard deduction is rising to $12,000 for single filers and $24,000 for married couples filing jointly.
Those changes may make it less possible or useful to itemize deductions related to debts that you're having settled through wage garnishment.
2017 Tax Law and Wage Garnishment
The lower standard deduction in 2017 of $6,350 for single filers and $12,700 for married couples filing jointly, coupled with additional allowable itemized deductions, may make it more advantageous to itemize and claim deductions related to debts you see garnished from your paycheck.
- FindLaw: Paycheck Deductions and Wage Garnishment
- US Tax Center: Wage Garnishment and Your Tax Refund
- Nolo: Can the IRS Garnish My Wages for Taxes?
- IRS: Topic Number 502 - Medical and Dental Expenses
- Bench: Cash Basis Accounting vs. Accrual Accounting
- IRS: Information About Wage Levies
- Publication 501 (2019), Dependents, Standard Deduction, and Filing Information | Internal Revenue Service
- U.S. Department of Labor. "Garnishment." Accessed Sept. 30, 2020.
- U.S. Department of Labor. "Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act's Title III (CCPA)." Accessed Sept. 30, 2020.
- U.S. Department of Labor. "Minimum Wage." Accessed Sept. 30, 2020.
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.