Garnishments are only transacted thru a Court Order or other legal means. To be garnished by the court or similar, you have an unpaid debt in which it is determined that the only way to be paid is to take (garnish) your assets or access to money. The most typical forms of Garnishments are:
- Tax refunds (federal, state and local)
- Wages, salaries, commissions, bonuses, tips
- Bank accounts
- Social Security
- Payments from pensions and retirement programs
- Receivables, if you have a business with Receivable
The order listed above is the typical hierarchy on how the agencies or creditors will go after your money or property. Let’s look at each form of garnishment.
The easiest manner the tax agency can recover unpaid debt is to just not give you your money back! You have a job and once you receive your paycheck, you’ve had Social Security and Medicare pulled out- AND also federal and State withholding. You may have been expecting a $2,000 refund from the IRS. But based on the unpaid taxes with the State, the entire $2,000 is sent to the State. Did you know the IRS and ALL states have access to each other’s databases? When there are unpaid taxes with one agency, it is generated automatically by the computer to retrieve the unpaid taxes from a reciprocating agencies – which is basically all of them. Is this correct? There is no law stopping this UNLESS you do not owe the taxes that you were garnished for.
The best course of action if you do not owe the TAX REFUND, depending on your circumstances, is to hire a Representative, such as with TDRS and fight for the return of the refund. If the money is owed, you will not see your Refund again unless circumstances as in the Case Study Injured Spouse Refund.
WAGES, SALARIES, COMMISSIONS, BONUSES AND TIPS
Notification that you will only receive a portion of your wages is a daunting thought. But is this the only solution. Do you have recourse? Yes. TDRS can work with the tax agency and arrange for a different solution that will reinstate your wages in full.
Employees are protected under the Consumer Credit Protection Act in Title III. An employee is protected under the Act from discharge because of the garnishment.
Title III also protects how much an employee can be garnished in any work week. The restriction is the lesser of – 25% of disposable earnings – OR – 30 times the Federal minimum wage. Even if an employee receives 5 garnishments, they are all cumulated and calculated together to stay within the limitations above.
If support is the reason for the garnishment, an individual can have up to 50% to 60% of their disposable earnings garnished, depending of specific circumstances. Additional wages are garnished up to 5% MORE if you fall in arrears.
Disposable Earnings takes into consideration only legal deductions. Disposable earnings removes the unnecessary deductions. Food is necessary. Trips to McDonalds are not.
Wage garnishment for unpaid taxes as you can see, may leave you with no money and possibly even force you to run up credit card bills. There are other options.
Read Case Study “UNEMPLOYMENT LEVY RETURNED”. Can you imagine waking up only to see you have NO money in your bank account. Auto drafts are hitting the account. Checks are bouncing. And on top of it, it was all the money you had. The Tax Agency took it all.
Knowing they will garnish your bank account will scare you into taking another route to prevent this action. This includes having TDRS contact the agency and work out a Payment Plan.
The IRS will take up to 15% of your social security if you owe taxes income taxes or trust fund taxes. Read the Case Study Taxpayer Advocacty Saves the Day. Dr. Jones initially came to TDRS because the IRS garnished 15% of his wages. He needed ALL his social security to live. TDRS prepared a #433F and called the IRS to have Dr. Jones declared CNC (Currently Not Collectible.) The 15% garnishment was removed.
A month ago Mrs. Smith walked in the office complaining the IRS was taking 100% of her social security. “How can they do this?”, she asked. The number one reason is that she had other income besides social security. Revenue Officers (See xxxx) can authorize that 100% of social security is garnished. This is only done once the Revenue Officer thoroughly studies the taxpayer finances and determines they have enough money to live on.
Effective January 1, 2016, the IRS started to levy up to 30%. Do you need to suspend Social Security to avoid this? No. TDRS has worked with the IRS on many occasions to develop other plans that the taxpayer and the IRS agree on.
Effective October 15th, 2015, the IRS no longer garnish SSA Disability Benefits.
PENSION AND RETIREMENT BENEFITS
Can my IRA Distribution be garnished? Of all the options listed here, taking your pension payments are the least likely to be garnished. It would require a Court Order and evidence that pursuing such payment is the only viable means to be repaid. Such action would typically be if someone owes over $1 million and tax agencies and creditors are taking all the money you have everywhere. For the average taxpayer this method of garnishment is nothing to worry about.
If you own a business and the IRS asks for a list of Customers with amounts owed from each customer, AND customers addresses, should you be worried? Why are they doing this? Yes, the IRS will contact your customers and garnish all payments – that were destined for your company- to be sent directly to them. Now you can’t make payroll and pay your suppliers.
If you receive Medicare payments, the IRS will take 100% of your Medicare payments.
TDRS will develop a Strategy. We will work with the IRS – Revenue Officers to prevent anything like this from happening. Has this happened to our clients? Yes, before they became clients. We immediately had the Medicare payment garnishments stopped.
What a sinking feeling to tell a client that the IRS will seize their property. A strategy was developed. The client did not want to follow it. They were told they were facing seizure. They did not care. They refused to give the IRS a dime.
As an employer, you are entrusted with taxes that have to be deposited with the IRS, the State and the Unemployment Agency. If you pay Tracy $5,000 a month and $750 goes to taxes, $4,250 is deducted from your companies bank account and a check is given to Tracy for that amount. You hold $750 in Trust that is NOT your money. Interest and penalties accrue on trust fund money not sent immediately to the tax agencies as required by law.
The client’s business was padlocked by the IRS because he would not pay the Trust Fund taxes. Think about it though. The employer is holding Trust money for social security, Medicare, federal withholding and state withholding. And this was NEVER his money. Instead he spent the money on new cars for himself, house payments, and so on. The IRS and State gave the refunds to his employees. Then who ended up paying the employee’s salaries… we did.
The client never followed our strategy for 6 years. Trust Fund taxes owed mounted to $65,650. The IRS Revenue Officer called 4 times threatening to shut down the business. And each time the client said, “Ok, just let them.” Each time the client said he would make Payment Plan payments. He would submit Trust Taxes timely as required. But he never did and he lost his business.