Wage Garnishment

ment of a debt, as required by a court or government agency. This deduction continues until the full debt is repaid or until the garnishment order is legally lifted. Wage garnishment is typically initiated due to obligations such as unpaid child support, tax liabilities, defaulted student loans, bankruptcy rulings, or unpaid consumer debts. Employers are legally required to comply with wage garnishment orders and must ensure that the correct amount is withheld and remitted to the appropriate entity on time.

IRS Wage Garnishment

IRS wage garnishment, sometimes referred to as a tax levy, is a specific type of wage garnishment initiated by the Internal Revenue Service (IRS) to collect unpaid federal taxes. Unlike other garnishments that often require a court order, the IRS can enforce wage garnishment administratively after sending proper notice to the employee. Once the IRS issues a Notice of Intent to Levy and the taxpayer fails to respond or resolve the debt, the agency can instruct an employer to begin withholding wages.

IRS wage garnishment continues until the tax debt is paid in full, a payment arrangement is reached, the IRS releases the levy, or the employee successfully appeals. Employers must act swiftly and comply fully with IRS directives, or they may face penalties themselves.

Garnishee

A garnishee is the party—typically the employer—who is required by law to withhold wages from an employee and remit them to a creditor or government agency. As a garnishee, the employer plays a critical administrative role in the garnishment process and must maintain strict compliance with federal and state guidelines.

Levy vs. Garnishment

Although the terms “levy” and “garnishment” are often used interchangeably, a levy specifically refers to the IRS’s legal seizure of property or income to satisfy a tax debt. In the context of payroll, an IRS levy functions similarly to a garnishment but originates from a tax authority rather than a court. Garnishments more broadly refer to legal withholding orders issued by courts for various non-tax debts.

Notice of Levy

A Notice of Levy is a formal communication from the IRS that alerts a taxpayer and their employer that the IRS will begin garnishing wages to collect a tax debt. The notice includes detailed information such as the amount owed, the effective date of the levy, and instructions for compliance. Employers must begin wage deductions promptly upon receiving this notice, unless the employee can provide evidence that the levy should be delayed or revoked.

Form 668-W

This is the IRS form used to notify employers of a wage levy. Once an employer receives Form 668-W, they are required to calculate the amount exempt from levy based on the employee’s filing status and number of dependents. The form includes a worksheet and instructions to assist with this calculation. The remainder of the employee’s wages above the exempt amount must be sent to the IRS.

Exempt Amount

The IRS allows a portion of an employee’s wages to be exempt from levy to cover basic living expenses. The exempt amount is calculated based on the employee’s filing status and the number of claimed dependents. Anything above that threshold is subject to garnishment. This ensures that employees retain enough income to meet essential needs while repaying tax debts.

Disposable Earnings

Disposable earnings refer to the amount of income left after legally required deductions—such as federal and state taxes, Social Security, and Medicare—are taken from an employee’s paycheck. Wage garnishments, including IRS levies, are typically applied to these disposable earnings. Voluntary deductions like retirement contributions or union dues are not subtracted when calculating disposable earnings for garnishment purposes.

Priority of Garnishment Orders

In cases where multiple garnishment orders exist for an employee, employers must understand the legal hierarchy. Generally, IRS wage garnishments take precedence over most other garnishment types—except child support or alimony orders, which may have higher priority depending on state laws. When conflicting orders are received, employers may need to consult legal counsel or contact the issuing authorities for clarification.

Garnishment Limits and Protections

The Consumer Credit Protection Act (CCPA) limits the amount that can be garnished from an employee’s wages. For most types of debt, the maximum garnishment is 25% of disposable earnings or the amount by which earnings exceed 30 times the federal minimum wage—whichever is less. However, IRS levies follow their own set of rules. The IRS calculates exempt amounts rather than applying a percentage cap. That means IRS garnishments can result in a significantly larger portion of wages being withheld than non-tax garnishments.

Employee Rights During Garnishment

Employees have the right to dispute or appeal a garnishment order, especially in cases involving IRS levies. Upon receiving a Notice of Intent to Levy, an employee can request a Collection Due Process hearing or negotiate an installment agreement before the garnishment begins. Once garnishment starts, employees can still contact the IRS to seek resolution, potentially leading to a levy release.

Employer Responsibilities

Employers play a central role in the wage garnishment process. Once a garnishment order—such as Form 668-W—is received, employers are responsible for:

• Promptly calculating exempt and garnishable amounts
• Withholding the correct portion of wages each pay period
• Submitting payments to the IRS or creditor as directed
• Notifying the employee and maintaining confidentiality
• Keeping accurate records and documentation
• Responding to any correspondence from courts or agencies

Failure to follow garnishment orders can expose the employer to liability for the employee’s full debt amount, penalties, or legal action.

Administrative Burden

Managing wage garnishments, especially IRS levies, adds administrative complexity to payroll operations. Employers must ensure garnishment calculations are performed accurately and remain in compliance with changing federal and state laws. Some organizations rely on automated payroll systems or third-party providers to help manage this process efficiently.

Garnishment Duration and Termination

Wage garnishments continue until the debt is fully repaid, the issuing agency sends a release, or a court order ends the garnishment. In the case of IRS wage garnishment, garnishment does not automatically stop when the employee files for bankruptcy; the IRS must issue a formal release or be subject to bankruptcy court jurisdiction. Employers should never stop withholding wages unless they receive official written notice to do so.