Owing a big debt to the IRS tends to bring a lot of fear, which is normal and even a somewhat healthy response. Fear can lead to action. And taking action means you avoid the hammer the IRS would bring down on you if you chose to do nothing instead (think federal tax lien).
When facing the reality of that debt pile, it’s also likely that one of your biggest fears is people finding out — including your boss. Of course, even if you don’t tell him/her, your boss will find out if it comes to the IRS having to garnish your wages as the result of a levy from tax debt.
In this situation, you might wonder if you can be fired as a result.
But, I have good news: Firing for wage garnishment due to a single debt is a big no-no. By law, Connecticut people struggling with tax debt are protected from being ousted for this kind of situation. Here’s why, along with other conditions and limitations on garnishment.
The law’s on your side with a federal tax lien
A federal tax lien in the form of a wage garnishment is any legal procedure through which some portion of your earnings is withheld to pay a debt (in this case, a tax debt to the IRS). Wage garnishments do not include “voluntary wage assignments” where you volunteered to let your boss turn over some pre-set part of your pay to a creditor.
You’ve got serious muscle in your corner if someone tries to fire you because of a wage garnishment from a federal tax lien due to back taxes: The Consumer Credit Protection Act (CCPA). The CCPA protects you from termination due to a wage garnishment for any one indebtedness, including one from the IRS. An employer can be fined up to $1,000 for taking action against you because of your IRS problem — and even go to jail for up to a year.
(Note: If it comes to this, you file your case against your employer with the U.S. Department of Labor, though you send general questions about your garnishment to the IRS.)
Not only that, but the CCPA also limits how much of your earnings can be garnished.
So, how much can the IRS take with a federal tax lien?
The CCPA defines earnings as compensation paid or payable for personal services, including wages, salaries, commissions, bonuses, and periodic payments from a pension or retirement program. Earnings may also mean money in lump sums, like commissions, severance, bonuses, retroactive raises, incentives, and awards. If you get tips, your earnings are the cash wages paid directly by your employer and the amount of any tip credit they claim under law.
Generally, how much of your pay a federal tax lien or garnishment can eat is based on what the Department of Labor calls your “disposable earnings,” or how much is left after legally required deductions: federal, state, and local taxes and your Social Security, Medicare, and State Unemployment Insurance tax — as well as withholdings for employee retirement systems, if any, required by law. Deductions not required by law — union dues, insurance, non-mandated retirement plan contributions — usually aren’t subtracted when calculating disposable earnings.
Also generally, the IRS (and state tax authorities, though this can vary) can garnish up to 60% of your eligible pay — this is no hard rule — and there’s also a minimum threshold before they can touch your pay. We stress: Much depends on the size of your debt and how cooperative you’ve been with the tax folks.
Work with the IRS on your federal tax lien
Hard as it is to believe at this moment, the sole purpose of the IRS isn’t to make your life miserable. Often, a federal tax lien or wage levies and garnishments are the result of poor communication from you.
Has the IRS sent you letters? Asked for payment? Don’t think you can ignore them and they’ll just go away — running silent is not a good move for you here. Contact the phone number or address on the letters (we can help) and talk to the IRS about payment plans. They’re even sympathetic to financial hardship — but they can’t be unless they know your current money situation.
They don’t even need those details if you owe less than 50 grand and can pay it back inside 72 months; they’ll work with you in that case. And file any tax returns you still owe — we can help there.
A little conversation can possibly get the federal tax lien and wage garnishment released. And when that happens, make sure your Connecticut employer gets all the paperwork. That’ll be one worry off your back.
Eyes on the prize here: You don’t want a legal fight with your boss — you just want to get out from under the IRS.
And we can help you keep your financial priorities straight and get you out of tax trouble. All you need to do is grab a time with us:
In your corner,
Emelia Mensa, CPA