IRS Wage Garnishments

A wage garnishment stays in effect until the tax is fully paid or until the IRS agrees to release the wage garnishment. IRS frequently uses wage garnishments to collect taxes owed through your employer. Once a wage garnishment is filed, the employer is required to collect a percentage of each paycheck. IRS wage garnishment requires that a large percentage of taxpayer's wages be turned over directly to the IRS.

Below are the sections from the IRS Internal Revenue Manual that deal with IRS levies and wage garnishments.

5.11.5.1 (05-05-1998)
Introduction

An individual's wages, salary, and other income can be levied. Wages and salary include payment for personal services in a work relationship.

5.11.5.2 (05-05-1998)
Employer Threatens to Fire Taxpayer Because of a Levy

1. Sometimes an employer threatens to fire an employee to avoid handling a levy. This might be a violation of 15 USC 1674.

2. If the employer fires the taxpayer because of this, the employer might be fined 00. There may also be a one year prison term.

3. Refer the taxpayer to the Wage and Hour Division of the Department of Labor (DOL). DOL, not IRS, must decide if the employer violated the law.

5.11.5.3 (09-04-1998)
Continuous Effect of Levy

1. Unlike other levies, a levy on wages and salary has a continuous effect. It attaches future paychecks, until the levy is released. Wages and salary include fees, bonuses, and commissions. All other levies only attach property and rights to property that exist when the levy is served.

   Example: If a bank account is levied, it only reaches money in the account when the levy is served. It does not affect money deposited later.

2. When other income is levied, the levy only reaches money the taxpayer has a fixed and determinable right to. Also see 6.1, about retirement and benefit income.

   Example: A levy is served to take an author's royalties. The author has a fixed and determinable right to royalties for books that have already been published. The levy reaches royalties for sales of those books in the future. The levy does not reach royalties for books that are written and published later. A new levy must be served to take those royalties.

3. Also, see 6.11.1 when a levy is served on a non-liable spouse in a community property state.

5.11.5.4 (05-05-1998)
Exempt Amount

1. Part of the taxpayer's wages, salary, and other income is exempt from levy.

2. The weekly exempt amount is:

   • The total of the taxpayer's standard deduction and the amount deductible for exemptions on an income tax return for the year the levy is served.

   • Then, this total is divided by 52.

3. Income that is not paid weekly is prorated, so the same amount is exempt.

4. In addition, the amount the taxpayer needs to pay court ordered child support is exempt. However, the order must be before the date of the levy.

   Note: The support order can be from a court or administrative process under the laws and procedures of a state, territory or possession.

   Reminder: If support is allowed, the same child can not be claimed as an exemption for figuring the exempt amount. See (2)a.

   If the taxpayer has already shown proof of the required child support payment.

   Then write, "Under section 6334(a)(8) of the Internal Revenue Code, $ ____________________ is exempt from this levy."

   If the taxpayer shows proof of the child support after the levy is served.

   Then release enough of the levy, so the support can be paid.

5. The taxpayer is not entitled to the support exemption, unless the support is being paid.

   • Consider getting the taxpayer to have the payment withheld and sent directly to the person with custody.

   • Instead, the taxpayer may make the payment through the Service, which will forward the payment. When there is no open assignment, have the payments sent through Case Processing Support. This may happen if the payments are being monitored in the service center.

5.11.5.4.1 (05-05-1998)
Claiming the Exempt Amount

1. The Notice of Levy on Wages, Salary, and Other Income includes a Statement of Exemptions and Filing Status. The employer gives this to the taxpayer to complete and return within three days. If it is not received by then, the amount is figured as if the person is married filing separate with one exemption. The taxpayer can give the statement to the employer later to change the exempt amount.

   Note: The employer needs to use this Statement rather than the employee's W-4. Taxpayers may claim different exemptions for withholding from those claimed on their return.

2. Publication 1494 is sent with the levy to help figure the exempt amount.

3. The taxpayer can give a new statement to the employer later to have the exempt amount computed again.

   Example: The taxpayer's filing status or personal exemptions may change.

   Example: There may be a change in exempt rates in a new year.

4. The statement is completed under penalty of perjury. Generally, accept the information on the statement, unless there is reason to question it. If it is disallowed, notify the employer and the taxpayer in writing. The taxpayer can show evidence that the statement is right and ask for a manager's review.

5.11.5.4.2 (05-05-1998)
Employers with Centralized Payrolls

1. Some employers have a centralized payroll, so the payroll is not handled where most employees work.

2. Consider mailing the statement of exemptions and filing status directly to the taxpayer. This avoids the delay of the employer remailing it.

   • Send Part 1 of the levy and Notice 484 to the employer.

   • Send the other parts of the levy and Notice 483 to the taxpayer.

5.11.5.4.3 (05-05-1998)
Joint Liabilities

1. For joint liabilities, generally, levy the income of the spouse with the larger income.

2. Levy both incomes only in flagrant cases of neglect or refusal to pay. Get manager's approval to do this. If taxpayers are separated, consider collecting from the second spouse before allowing the entire amount to be paid by levy on one person's income.

   IF the taxpayers are filing as married filing jointly & both taxpayers' incomes are levied

   Then only one of them can claim the standard deduction for figuring the exempt amount.

   If the taxpayers are filing with any other filing status & both taxpayers' incomes are levied

   Then both can claim the standard deductions for their filing status.

   If the taxpayers are remarried and filing as married filing jointly with the new spouses & both taxpayers' incomes are levied

   Then both can claim the standard deductions for their filing status.

3. When both spouses' incomes are levied, neither spouse can claim the other one as a personal exemption.

5.11.5.4.4 (05-05-1998)
Taxpayers with More Than One Source of Income

1. Consider income from all sources when a taxpayer has more than one source.

   If the taxpayer is getting the exempt amount from one source of income that is levied & another source of income is levied, too.

   Then include Letter 1697(P) with the second levy to tell the employer not to allow any exempt amount.

   If the taxpayer has a source of income that is not levied & that source of income is at least as much as the exempt amount.

   Letter 1697(P) can be included with a levy on another source of income to tell the employer not to allow the exempt amount.

2. See Exhibit 5.11.5-1, for a copy of Letter 1697(P).

5.11.5.4.5 (05-05-1998)
Taxpayer's Payroll Deductions

1. A levy legally attaches the taxpayer's gross income minus the exempt amount. However, see Policy P-5-29. By policy, a levy only attaches the taxpayer's usual take home pay.

   Exception: Voluntary deductions can be disallowed, if they are so large they defeat the levy.

2. Generally, allow the taxpayer to maintain deductions they already have when the levy is served. Notify the employer and the taxpayer of deductions that must stop while the levy is in effect. The taxpayer can ask for a manager's review of this.

   Example: The taxpayer has a deduction used to buy shares in a mutual fund.

3. Generally, employer's should not allow new voluntary deductions after receiving the levy. Exceptions can be allowed on a case by case basis, with the Service's approval.

   Example: The taxpayer can not join the company insurance plan, until he is on the job six months. The levy is served before then. The amount of the premium is not unreasonable.

4. The method that the taxpayer is paid is not relevant to take home pay. Direct deposit is not a payroll deduction.

5.11.5.4.6 (07-26-2002)
Severance Pay

1. The taxpayer may leave a job and get severance pay.

   If severance pay is attributable to pay for a period of time.

   Then the exempt amount is based on that time period.

   If severance pay is not attributable to pay for a period of time.

   Then the amount exempt for one pay period is used.

   Example: Severance pay is one week's pay for each year on the job. A taxpayer on the job for ten years gets ten weeks' severance pay. The taxpayer gets a paycheck every two weeks for ten weeks. Two weeks' exempt amount is subtracted from each check, just like the person was still working for ten weeks.

   Example: The same facts as above, but the taxpayer gets the amount in one payment. The payment is attributable to ten weeks' pay. The employer is just making an "advance" payment, instead of writing a series of checks. The taxpayer gets ten weeks' exempt amount.

   Example: A taxpayer gets a lump sum that is not attributable to a period of time. This could be, for example, an incentive payment to retire early. The exempt amount is based on the taxpayer's regular pay period. If there is no regular pay period, use one week's exempt amount. Similarly, if the taxpayer gets 00 for each year on the job, this is not attributable to pay periods. A person getting ,000 for being on the job ten years does NOT get ten years' exempt amount.

2. This assumes the person is not already getting the exempt amount for a pay period at the same time. If both are being received, the taxpayer does not get the exempt amount twice.

   Example: The taxpayer is paid for both the last pay period worked and severance on the last pay day. The taxpayer only gets the exempt amount once.

5.11.5.5 (07-26-2002)
Levy Payments

1. Credit levy payments on the date they are received. Apply the money in the most advantageous way to the government. Generally, apply it to the oldest assessment, first. The taxpayer can not designate how to apply the money, because this is not a voluntary payment.

2. Use designated payment code (DPC) 05 for levy payments. Use DPC 15 for other payments caused by a levy, if they are not levy proceeds.

   Example: A wage levy prompts the taxpayer to pay the amount owed, to get the levy released. Code this payment with DPC 15.

3. Payments for these levies may be small. Decide if the amount owed should be paid from the levy proceeds. When the payments are small compared to the amount owed, though, consider other enforced collection.

   If Payments are being monitored in CFf & one more payment is expected to pay off the amount owed.

   Then use Form 668-D to give the employer a payoff figure and release the levy after that is paid.

   If at least two payments are received & no additional collection is warranted.

   Then consider transferring the case to the service center for monitoring. Get management approval, first. See 2.4.9 and 4.3.3.5 of IRM 105.1 Collecting Contact Handbook.

Section 7216 Frequently Asked Questions
These Frequently Asked Questions (FAQs) present introductory information about revised regulations and a new revenue procedure for complying with Internal Revenue Code Section (IRC §) 7216. It is intended to alert tax return preparers and other persons who work with preparers and taxpayers that important new rules and regulations apply to them and the way they do business. Readers should not rely solely on this Q&A to answer questions. Instead please refer to the recently revised Treasury Regulations, Treas. Reg. §301.7216, and recently enacted Revenue Procedure 2008-35  for complete authoritative information.  If you have other questions, please seek the advice of counsel. Q1 What is §7216 and why is it an issue now? A1  Internal Revenue Code §7216 is a criminal provision enacted by the U.S. Congress in the 1971 that prohibits preparers of tax returns from knowingly or recklessly disclosing or using tax return information.  A convicted preparer may be fined not more than $1,000 or imprisoned not more than one year or both, for each violation.  The Secretary of Treasury is permitted to grant exceptions to this general prohibition by issuing regulations.  Treas. Reg. §301.7216 had been  substantially unchanged for over 30 years and did not address the modern return preparation marketplace, particularly electronic filing and the cross-marketing of financial and commercial products and services during the return preparation experience.  After a long process that included many public suggestions and comments, updated regulations were published on January 7 and July 2, 2008 and apply to uses and disclosures beginning on January 1, 2009. Q2 How are civil penalties applicable to the disclosure of tax return information? A2 Internal Revenue Code §6713 imposes a civil penalty of $250 on any person who is engaged in the business of preparing, or providing services in connection with the preparation of returns of tax, or any person who for compensation prepares a return for another person, and who Discloses any information furnished to him for, or in connection with, the preparation of any such return, or Uses any such information for any purpose other than to prepare, or assist in preparing, any such return.  Imposition of the penalty under Internal Revenue Code §6713 does not require that the disclosure be knowing or reckless as it does under Internal Revenue Code §7216. Q3 What is a “tax return preparer?” A3 Tax return preparers are persons that participate in the preparation of tax returns for taxpayers, including but not limited to: Return preparers that are in business or hold themselves out as preparers* Casual preparers that are compensated Electronic return originators** Electronic return transmitters** Intermediate Service Providers** Software Developers** Reporting Agents** The definition also extends to those that assist others in preparing returns or performing auxiliary services in connection with preparing returns, or are employed by preparers and perform auxiliary services in connection with the preparation of tax returns. NOTE: *   This includes volunteer preparers that participate in programs like VITA       and TCE. ** These persons are part of the electronic filing arena and are collectively      known as e-file providers (see also Revenue Procedure 2007-40). Q4 Have the new regulations changed the definition of tax return preparer? A4 The new regulations clarify that e-file providers are considered tax return preparers and persons that perform auxiliary services for e-file providers in connection with tax return preparation are covered by the statute and regulations.  The regulations also clarify that contractors receiving tax return information (See 5 below) from tax return preparers are considered tax return preparers subject to the same provisions and penalties.   Tax return preparers that engage contractors and disclose tax return information to them are required to inform contractors of the rules and consequences in a written notice.  (See also questions 12-17 below). Q5 What is “tax return information?” A5  Tax return information is all the information tax return preparers obtain from taxpayers or other sources in any form or manner that is used to prepare tax returns or is obtained in connection with the preparation of returns.  It also includes all computations, worksheets, and printouts preparers create; correspondence from IRS during the preparation, filing and correction of returns; statistical compilations of tax return information; and tax return preparation software registration information. All tax return information is protected by §7216 and the regulations. Q6 What are “disclosures” of tax return information? A6  Disclosure of tax return information is the act of making tax return information known to any person in any manner whatsoever.  The regulations authorize two types of disclosures: Certain permissible disclosures without taxpayer consent Disclosures requiring taxpayer consent The regulations provide exceptions allowing tax return preparers to disclose tax return information without a taxpayer’s prior written consent under certain circumstances: e.g., disclosures to the IRS, other taxing jurisdictions or the courts; disclosures to other U.S.-based tax return preparers that assist in preparing the return; and disclosures for the purpose of obtaining legal advice.  These and other exceptions can be found in Treas. Reg. §301.7216-2. All other disclosures not specifically authorized require tax return preparers to secure from taxpayers advance signed consents (see 7 below) authorizing the disclosures. Q7 What are “consents to disclose tax return information?” A7 Consents to disclose tax return information are paper or electronic documents that contain certain specific information including the names of the tax return preparer and the taxpayer and that specify the nature of the disclosure(s), to whom the disclosures will be made, and details on the data to be disclosed.  Consents are valid only if they are a made by the taxpayer knowingly and voluntarily and are signed and dated by the taxpayer in pen-and-ink or electronically.  Consent forms must include certain language and warnings.  Refer to Treas. Reg. §301.7216-3(a)(3) and Revenue Procedure 2008-35 for complete information. Q8 When and how does a tax return preparer obtain consent to disclose tax return information? A8 Tax return preparers must obtain consent to disclose tax return information before returns are provided to the taxpayer for signature and before tax return information is disclosed.  The rules for obtaining consents are found in Treas. Reg. 301.7216-3 and Revenue Procedure 2008-35. Q9 What are “uses” of tax return information? A9 Uses of tax return information are occurrences where tax return preparers refer to, or rely on, tax return information as the basis to take or permit actions.  The regulations authorize two types of uses: Certain permissible uses without taxpayer consent Uses requiring taxpayer “consent to use tax return information” The regulations authorize tax return preparers to use specified tax return information without a taxpayer’s prior written consent under certain circumstances: e.g., to create lists for solicitation of tax return business; to produce statistical information in connection with tax return preparation business.  These and other exceptions can be found in Treas. Reg. §301.7216-2. All other uses not specifically authorized require tax return preparers to secure from taxpayers advance signed consents (see 10 below) authorizing the uses.  Q10 What are “consents to use tax return information?” A10 Consents to use tax return information are paper or electronic documents that contain certain specific information including the names of the tax return preparer and the taxpayer and that describe the particular use authorized, identify the product or service for which the tax return information will be used, and detail the data to be used.  Consents are valid only if they are made by the taxpayer knowingly and voluntarily and are signed and dated by the taxpayer in pen-and-ink or electronically.  Consent forms must include certain language and warnings.  Refer to Treas. Reg. §301.7216-3(a)(3) and Revenue Procedure 2008-35 for complete information. Q11 When and how does a tax return preparer obtain consent to use tax return information? A11 Tax return preparers must obtain consent to use tax return information before tax return information is used and before returns are provided to the taxpayer for signature.  The rules for obtaining consents are found in Treas. Reg. §301.7216-3(b) and Revenue Procedure 2008-35. Q12 Do consents to disclose or use tax return information have expiration dates? A12 Yes.  The taxpayer and tax return preparer may agree to specify the period of time the consent will be effective and include the period in the consent form.  If no period is specified the regulations state that the consent will be effective for a period of one year from the date the taxpayer signed the consent. Q13 Have the rules changed for obtaining consents to disclose or use tax return information? A13  Yes. The basic rules are still provided by Treas. Reg. §301.7216-3, while additional rules can be found in Revenue Procedure 2008-35. These rules include the following notable changes: Multiple consents to disclose are permitted on one consent form Multiple consents to use are permitted on one consent form Consent form format requirements have changed Certain prescribed language and warnings are now required Electronic consent forms are expressly permitted Electronic signatures on consent forms are expressly permitted Disclosure of social security numbers outside the U.S. must satisfy special requirements. Refer to Treas. Reg. §301.7216-3 and Revenue Procedure 2008-35 for other changes and complete information. Q14 What are the special rules for disclosing tax return information outside the United States? A14 Disclosing tax return information to another tax return preparer that is assisting in the preparation of the return or providing auxiliary services in connection with preparing the return generally does not require the consent of the taxpayer.  However, if the other tax return preparer is located outside the United States or any territory or possession of the United States, the taxpayer must agree and sign a form consenting to the disclosure.  See Revenue Procedure 2008-35, section 4.04(1)(e) for specific language that must be included in the consent form.  If the tax return information to be disclosed includes social security numbers, (See Q3). Q15 What are the special rules for disclosing social security numbers outside the United States? A15 Generally, tax return preparers may not obtain consents to disclose social security numbers to tax return preparers located outside the United States or any territory or possession of the United States.  If social security numbers are included in documents for which the tax return preparer has obtained the consent of the taxpayer to disclose the tax return preparer must redact or mask any social security number before disclosing the tax return information to a return preparer outside the United States.  There is an exception.  Social security numbers may be disclosed to tax return preparers located outside the United States if taxpayer consent is obtained and both the sending and receiving tax return preparers maintain adequate data protection safeguards defined in Revenue Procedure 2008-35, section 4.07.  See also Revenue Procedure 2008-35, section 4.04(1)(e)(ii) for specific language that must be included in the consent form. Q16 Are the staffs of banks and credit unions that receive copies of tax returns in connection with applications for mortgages included within the definition of tax return preparers?  A16 No.  They are ordinarily not covered because they ordinarily are not preparing a taxpayer’s return, providing auxiliary services in connection with the preparation of tax returns, being compensated for preparing tax returns, or employed by a tax return preparer.   Q17 Are the people who prepare Medicaid applications deemed subject to the regulations because they use tax return data in preparing Medicaid applications? A17 No.  (See A16).   Q18 Are the members of co-op boards of directors subject to the regulations because they require a tax return in the package of documents that must be included when seeking approval to purchase a co-op?  A18 No.  (See A16).   Q19 Is a fee-based financial planner subject to the regulations because they review copies of tax return in order to create a financial plan? A19 No.  (See A16).   Q20 Are financial aid advisors included because they utilize tax return data? A20 No.  (See A16).

Page Last Reviewed or Updated: November 07, 2008