An IRS wage levy has the potential to put a family out in the street if they or their employer don’t understand IRS practice and procedure with respect to wage levies. Unlike other levies, an IRS wage levy is continuous and attaches to future paychecks until it is released by the IRS. Wage levies are served to the taxpayer’s employer by Revenue Officers working out of an IRS District Office. New Hampshire has IRS District Offices in Portsmouth, Manchester and Nashua. The major District Office in Massachusetts is located in Stoneham, MA. Also, your employer may be served a levy from branch of the IRS known as ACS (Automated Collection Services) which is a call site that collects non-filed tax returns, sets up installment agreements and issues levies.
Once your employer receives Form 668-W Notice of Levy on Wages, Salary and Other Income they are required to have you complete part 3 “Statement of Exemptions and Filing Status” and return it to the IRS within 3 days. You absolutely want to take action right away in completing this document to assert your right as to how much of your paycheck the IRS is entitled to under the law if any. There is a provision in the law that mandates a portion of a taxpayer’s earnings are exempt or protected from an IRS wage levy. There may be a very good possibility that once you fill out this document, you may discover the IRS is not entitled to any amount of your paycheck or a very small portion. If the “Statement of Exemptions and Filing Status” is not completed and returned timely, the exemption from levy will be calculated as married filing separately with one exemption resulting in the IRS receiving much more of your paycheck. However, if this deadline is missed the employee can always give the statement to the employer to make the appropriate change at a later date.
The amount exempt or protected from an IRS wage levy is calculated by simply adding the amount of your exemptions and standard deduction that you are entitled to when you file your Individual Tax Return Form 1040 and dividing it by your pay period. For example, if you are married and file a joint return and have 2 dependent children and are paid weekly, the amount exempt from levy is calculated as follows:
The exemption amount for 2016 is $4,050 multiplied by 4 exemptions equals $16,200 plus the standard deduction for 2016 married filing jointly of $12,600 equals $28,800 which represents the annual exemption from levy. The weekly amount exempt from levy is $553.85 ($28,800 divided by 52 weekly pay periods). This means the IRS must leave you with at least $553.85 per week. Therefore, if your regular weekly pay check is for $500, the IRS is not entitled any portion of your paycheck because it is less the exempt from levy amount of 553.85. However, if your regular paycheck was $600 per week, the IRS would get $46.15 per week and you would get $553.85 per week. When the IRS issues a Notice of Levy on Wages, Salary and Other Income, they include Publication 1494 which is a table for figuring the amount exempt from levy without doing the actual calculation.
It is important to know that under the law, an IRS wage levy attaches to the taxpayer’s gross income minus the exemption from levy amount, however, the IRS issued Policy Statement 5-29 that went into effect on September 29, 1999 and is still in effect today, that provides taxpayers under a wage levy significant relief from the wage levy.
IRS Policy Statement 5-29 reads in part as follows:
- Levy on salary or wages-generally limited to “take home” pay
- Except for the statutory exemptions in IRC 6334(a)(8) which is court ordered child support and IRC 6334(a)(9) which is the exemption from levy calculation above, a levy legally attaches to the gross amount of the accrued wages or salary. However, in the interest of administrative expediency, a levy will be considered as attaching only to the “take home” pay of the delinquent taxpayer unless it is determined that the taxpayer is voluntarily allotting his or her pay to an extent that would defeat the purpose of the levy.
The following is an example how your employer should calculate the amount exempt from levy based on the IRS Policy Statement 5-29:
John is married and has two dependent children and pays weekly child support of $100 for a child from a previous marriage. His gross earnings before any deductions for taxes, child support and health insurance is $1,200.00 per week. Before any IRS wage levy John’s weekly paycheck was as follows: Gross Pay $1,200, less payroll taxes of $291.80, less child support of $100, less $50 for health insurance resulting in a net payroll check in the amount of $758.20 per week. This $758.20 is considered the take home pay referenced in IRS Policy 5-29 and is the starting point for applying the exemption from levy. Therefore, in this case John’s employer would be required to send the IRS $204.35 per week, calculated by subtracting from the take home pay of $758.20, the exemption from levy amount of $553.85 that was calculated earlier. If an employer misunderstood how to apply these provisions, the result could be financial devastation for a family. Consider your employer doing a quick read of the Form 668-W Notice of Levy on Wages, Salary and Other Income and calculated the exemption from levy as follows: John’s gross pay $1,200 less exemption from levy $553.85 and sends $646.15 per week to the IRS instead of the required $204.35. Over the course of a month that employer will send $2,797.82 ($646.15 X 4.33 weeks per month) more to the IRS than required. Don’t let your employer put your family at risk. Make sure they have a clear understanding on how to process a wage levy. My next post will be on how to get wage levy released.