If you owe back taxes, which you refuse to pay or make arrangements to pay, the governing revenue agency can garnish or levy your wages. The Internal Revenue Service administrates federal tax laws and your state department of revenue or taxation agency oversees state tax laws. The amount of your garnishment withholding depends on the tax you owe and the governing agency.
Unlike creditors, the IRS and the state department of revenue do not need a court order to garnish wages. But they must perform certain tasks before doing so. This includes sending you a notice demanding payment. If you do not pay, or make an arrangement to pay, the agency sends you a notice of it’s intent to levy your property, or rights to property, such as your wages. The IRS gives you 30 days in which to file an appeal. If you do not file an appeal, or if you lose the appeal, the agency sends the information to your employer to begin withholding your wages. The state might follow this appeals process, or it might send you a notice requiring payment, which includes its intent to levy, and then levy if you do not respond.
To determine the amount to deduct for an IRS wage levy, your employer uses Publication 1494, and your Statement of Exemptions and Filing Status, which your employer should have given you to complete when it received the levy. First, it subtracts existing child support and voluntary deductions, if applicable, from your gross income. Then it uses your filing status and number of claimed exemptions, as shown on your statement, and the table in Publication 1494 which matches your statement information and pay period to figure out the amount of your wages that should not be included in the garnishment. It subtracts the exempt amount from your pay after subtracting child support and voluntary deductions; the remainder is the garnishment amount that your employer sends to the IRS until the levy is released.
State garnishment limits vary by state. For example, the Illinois Department of Revenue requires an employer in Illinois to withhold up to 15 percent of your gross pay until the department releases the levy. The California Franchise Tax Board requires an employer in California to withhold the lesser of 25 percent of your disposable income for the pay period or the amount by the disposable income exceeds 30 times the federal minimum hourly wage. Contact your state revenue agency for state wage garnishments limits.
The state might allow your employer to deduct a small fee, such as $1.50 or $2 from your pay to compensate for performing the garnishment. Your gross pay is your income before deductions; your disposable pay is your income after legally required deductions. The statute of limitations for the IRS to collect on a tax debt is 10 years from the date it was assessed. State statute of limitations varies, such as between two to 20 years in Illinois.
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.