Taxation & Estate Planning

What Happens During IRS Collection Through Salary and 1099 Garnishments

By Darrin Mish

Because creditors collect payments directly from paychecks, salary garnishment is a tough situation for people in debt. For a number of reasons, people can get their wages garnished.

First, wage garnishment happens after a verdict has been arrived at against a defendant. The defendant's paycheck is garnished as a result. This means that money is directly taken from the paycheck (or other source of income) to be paid to the creditor or plaintiff. Here are some typical reasons that wages are garnished:

* Child support is required.
* Taxes are in arrears.
* Court fines unpaid.
* Student loans are in arrears.
* Credit card debt.
* Other debts.

Differing from state to state, federal law maintains garnishment at 25%. States like Pennsylvania, North and South Carolina, and Texas don't allow garnishment, while others allow lower amounts for garnishment. The fixed order for garnishments to be taken when income is insufficient is federal first, state second, and credit cards last.

When garnishing wages, the IRS has a process that needs to be complied with:

* The first thing served is a Notice and Demand for Payment.
* A Final Notice is served no more than thirty days before the garnishment will take effect. (Note: A lot of settpeople don't receive the Final Notice because it doesn't have to be delivered personally. They may not be aware of the garnishment on their wage.)
* Unless other deals are reached for settlement or the debt is paid off, salary will be garnished. Defendants can't decline to have their salary garnished.

The 1099 is the form that is provided to freelancers, such as writers, actors, and artists who are not employees of particular companies. They must file a 1099 form if a freelancer makes $600 or more in a year from a firm. These declare income to the IRS. They do not deduct any taxes or withholdings, so the 1099 freelancers have to deduct the taxes themselves.

When wages are garnished, the settlement has to be taken out of an employee's paycheck by the employer. Employers aren't responsible to do so, though, with private contractors or freelancers. Instead of the salary being garnished, the contractor's bank account or accounts receivable are levied by the creditor.

When a bank account is levied, it is frozen, and all or some of the money in the account is seized. This is most commonly practiced by the IRS, but other creditors can do it, as well. Until the debt is paid, creditors can levy bank accounts.

Having your wage garnished or your bank account levied is serious. To assist you with this and for IRS help for other tax problems, talk to an experienced lawyer.

Darrin T. Mish is a nationally recognized tax attorney whose practice represents clients nationally and internationally with IRS problems. With over a decade of experience resolving clients? IRS issues, he is AV rated by Martindale-Hubbell and has been honored by a listing in Martindale-Hubbell?s Bar Register of Preeminent Lawyers. He is a member of the American Society of IRS Problem Solvers and the Tax Freedom Institute. With a passion for providing IRS help to taxpayers with both individual and payroll tax problems, he travels the country training attorneys, CPAs, and enrolled agents on how to handle their toughest cases with the IRS. If you would like more information about his practice and how he can help you, please call his office at (813) 229-7100 or toll free at 888-GET-MISH.

Full post as published by IRS Problem Solver Blog on August 03, 2009 (boomark / email).