Taxation & Estate Planning

?Is the Tax Levy on Wages Really Fair?

By Darrin Mish

If you have ever had an IRS tax levy levied upon you, you know how damaging it can be. An IRS tax levy authorizes the IRS to take a big cut of your monthly salary to pay off your tax debt. Many people find the use of a tax levy unfair because they are not left with enough money to pay for rent, food and living expenses. But this has not stopped the IRS from using this method of collecting whatever taxes are due to them. If you want to know what you can do about such a dreaded situation, read on.

A tax levy is also known as wage garnishment and is only used by the IRS as a last resort after all other means of getting you to pay your tax dues have failed. The IRS would not impose a tax levy right from the beginning when you fail to pay your taxes for any particular year. This is because they know that they would not likely be able to collect the entire debt through a tax levy. Wages can only be garnished so much and people often call the IRS after the first paycheck is deducted to discuss their options. That is exactly what the IRS wants you to do and once you have contacted them, they will tell you the following things.

The primary way to eliminate a tax levy is to make a mutually agreeable payment plan with the IRS. A payment plan is where you pay off your tax debts over a staggered period of up to 12 months. In most cases, the IRS will be unwilling to give you more than 12 monthly payments for your current tax debtso that you always stay current with your taxes. If taking a payment plan over 12 months still doesn't help you, you can apply for one of three Offers in Compromise.

An Offer in Compromise is where you can actually pay less than what you owe and have the remainder waived. While they evaluate your application for an Offer in Compromise, the IRS will suspend the tax levy. Wages will no longer be taken from your paycheck during the often lengthy processing time. There are three main kinds of Offers in Compromise. The first is where you are unable to pay your total tax debt because it will cause undue hardship on yourself and your family if you do so. The IRS will look at your total assets and how much you are making at your job, minus your living expenses and come up with a percentage of your total debt that they feel you can afford to pay. The worse shape you are in, the smaller the percentage will be.

A second form of offer is where you discover a mistake in the total amount of tax debt that you owe or that you are not the sole person liable for the total debt. If you can prove that, then your tax debt is reduced to the amount that you are correctly liable for.

A final offer is where you are unable to pay for your total tax debt before the deadline. In such a case, the IRS will accept a lump sum payment for a percentage of your debt and forgive you of the rest. There are few things that are as devastating as a tax levy. Wages are subject to a tax levy (whether you think it is fair or not) unless you call the IRS and talk to them right away.

?Is the Tax Levy on Wages Really Fair? is a post from: IRS Tax Problem Solver Blog - IRS Help

Full post as published by IRS Problem Solver Blog on February 17, 2010 (boomark / email).