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What to do when the IRS levies your paycheck

Taxpayers may not realize the IRS has issued a levy until payday arrives, but their paychecks do not. At Gatherwright Freeman we know that without funds to meet basic living expenses, missed car loans and mortgage payments often follow. Fear not, we can get the IRS to release or reduce levies in most circumstances, but taxpayers should take immediate action.

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Wage levies are continuous.

It is important to address a payroll levy as soon as possible because such levies are continuous until the tax is paid in full. Basically, if the IRS took the taxpayer’s paycheck last week, it is going to take the taxpayer’s paycheck next week too, unless the taxpayer takes action. A wage levy is not a one-time event, and it will not go away by itself.

The IRS may exempt a small amount of taxpayer’s pay.

If the taxpayer fills out the necessary paperwork (Forms 668-W, 668-W(ACS) and 668-W(ICS)), the IRS does provide an exempt amount from the levy, but it is a very small amount. Typically this exempt amount is calculated by adding the standard deduction the taxpayer claims on his or her income tax return and the amount claimed for dependents then divided by 52.

That and a quarter will get the taxpayer a cup of coffee.

The IRS will also exempt any amount required for court-ordered child support.

Even better, the IRS may release the levy.

A better way to address an IRS levy is to simply have it released. Internal Revenue Code § 6343 requires the IRS to release wage levies under certain circumstances. At Gatherwright Freeman we communicate directly with the IRS so the taxpayer does not have to be interrogated. We understand the urgency of a missed paycheck, and we start working on the levy release the same day we meet with the taxpayer. We have the levy release forwarded directly to the taxpayer’s payroll department so the taxpayer does not miss another pay period.

Economic Hardship. Economic hardship is one way to have a levy released or reduced. The IRS may try to dispute that the levy is causing economic hardship. The taxpayer will be required to provide financial statements and documentation to prove the taxpayer’s circumstances. At Gatherwright Freeman we prepare the financials and paperwork necessary to have the levy released and the taxpayer’s account placed in uncollectible status.

Installment Agreements. Alternatively, the IRS may release the levy if the taxpayer enters into an installment agreement. Internal Revenue Code § 6343 requires the IRS to release a levy if the IRS entered into an installment agreement with the taxpayer. The IRS may ask for a larger payment than the taxpayer can afford. At Gatherwright Freeman we prepare the financials and paperwork necessary to get the taxpayer the lowest possible payment.

Bankruptcy. Filing bankruptcy will also suspend a levy on the wages and property of a taxpayer. Levying on a taxpayer who is in a bankruptcy violates the automatic stay and the levy must be released.

Wrongful Levies. Any notice of levy that violates the Internal Revenue Code or regulations must also be released. Taxpayers may not even realize that a levy is in violation of the Internal Revenue Code or regulations. Gatherwright Freeman can conduct a careful review and examination of the taxpayer’s IRS account information to make this determination. For example, if the IRS has not issued the taxpayer’s CDP rights, the taxpayer’s CDP hearing is pending, or the Statutory Collection Period has expired the IRS is prohibited from levying the taxpayer.|

Taxpayers can still file an offer in compromise.

Getting the payroll levy released may be just the first step in putting the taxpayer’s tax problems in the past. Pursuing an offer in compromise after the levy is resolved may be a good option for the taxpayer.

Just because a taxpayer who wishes to resolve a wage levy as quickly as possible enters into an installment agreement or receives economic hardship status from the IRS, he or she is not prohibited from requesting an offer in compromise. During periods of economic hardship status and while installment agreements are in effect, the IRS cannot levy, but penalties and interest are still accruing and the tax, including any tax liens, remain outstanding. Moreover, the IRS revisits taxpayers’ installment agreements and economic hardship status periodically, so a more permanent solution such as an offer in compromise is preferable if the taxpayer is eligible.