CPA Practice Advisor - 37

A YEAR IN THE LIFE: PAYROLL ACCOUNTANT

or drag their feet on implementing the order
in an attempt to help an employee. Employers who fail to submit wages that are to be
garnished timely may be required to personally pay the amount that should have gone to
the IRS. Additionally, the employer may also
be assessed a penalty equal to 50 percent of
the wages that should have been remitted.
The employer will give the affected worker a
Statement of Dependents and Filing Status,
provided by the IRS, that must be filled out,
signed under penalty of perjury, and returned
to the employer within three days. The information provided on this form will determine
how much of the wages will be exempt from
garnishment. The following information is
provided by the taxpayer:
■ Filing status as it appears (or would appear
if there is a change of marital status or the
taxpayer can file Head of Household) on the
taxpayer's individual income tax return.
■ Number of dependents the employee may
claim on the individual income tax return,
as well as the relationship the employee has
with the dependent (child, stepchild, parent,
sibling, etc.).
■ The number of additional standard deductions
the employee and the employee's spouse are
entitled to claim on their individual income
tax return due to being age 65 or older or blind.
Each dependent must have a valid Social
Security number. The only time the employee
does not need to provide a Social Security
number is if the dependent is an infant under
six months old. If this statement is not filled
out and returned within three days, the
exemption amount will be calculated using
married filing separately as the taxpayer's
filing status with no dependents.
The employer takes the information above
and applies it to the tables provided by the IRS
in Publication 1494, Tables for Figuring Amount
Exempt from Levy on Wages, Salary, and Other
Income, to determine the total wages that are
exempt from levy. There are different tables for
each filing status, and each table determines
the total wages the employee can keep based
on the number of dependents claimed and the
frequency in which the employee is paid.

Generally, the IRS does not garnish all of
a taxpayer's wages. However, if the taxpayer
has more than one job (which many people do),
the IRS may garnish all of the wages from one
employer. The IRS will collect all of the income
received from any additional payments,
such as bonuses or incentive pay, which the
taxpayer receives during the garnishment
period. It is essential to discuss with your
client as soon as possible that the total of any
bonuses or incentive pay they receive while
the garnishment order is still in effect will be
forwarded to the IRS, up to the total tax due,
including penalties and interest.

WAGE GARNISHMENT
REPRESENTATION BASICS
Once a wage garnishment starts, it generally
does not stop until the debt is paid in full.
Other ways a garnishment can be released are:
■ The statute of limitations on the collection
of the tax due has ended. Generally, the IRS
has 10 years from the date the tax is assessed
to pursue collection. Obtaining a Record of
Account Transcript or Tax Account Transcript
(depending on how old the tax liability is) will
aid in determining the collection statute of
limitations date. Keep in mind that several
actions can suspend the collection statute,
such as requesting an installment agreement
or offer in compromise, serving in the Armed
Forces on active duty, requesting a collection
due process hearing, etc. Because there
are various reasons why the statute can be
suspended, it is key to confirm the collection
statute of limitations date with the IRS
representative assigned to the case.
■ Making other arrangements with the IRS to pay
the taxes that are due, such as an installment
agreement or offer in compromise. Unless the
taxpayer is experiencing severe economic
hardship, enter ing into an installment
agreement may be the quickest way to release
a continuous wage levy.
■ If releasing the levy will facilitate the collection
of the debt.
■ If the garnishment is creating an economic
hardship, the taxpayer may qualify for
Currently Not Collectible status. Generally,
taxpayers will need to show proof that the
garnishment is creating a severe economic
hardship by submitting a completed IRS Form
433, Collection Information Statement.

A severe economic hardship is one where
the levy is preventing the taxpayer from
being able to pay for their reasonable living
expenses. The IRS is required by Code Section
6343(e) to release a continuous wage levy as
soon as it is practicable if it is determined
that a taxpayer qualifies for currently not
collectible status. Furthermore, if a taxpayer
qualifies for currently not collectible status
and has outstanding returns to file, the IRS
may not withhold the release of the levy until
the returns are prepared and filed.[2]
A request to release a wage garnishment
can be made either in writing or by phone. The
request should be made to the district director
for the IRS district where the levy originated.
Generally, the IRS has thirty days to respond
to this request. Denials of wage levy release
requests may be appealed.
Having a wage garnishment order issued
is frightening. Trying to navigate through the
process alone can be intimidating to the point
where the taxpayer just gives up and accepts
their fate. As tax practitioners, we have an
opportunity to not only provide empathy and
the skills to resolve the matter with the IRS, we
can also empower our clients by helping them
understand the IRS process. Our clients hear
many horror stories about wage garnishments,
and some of the tales are frighteningly true.
However, a taxpayer's liability does not have
to get to this point. Offering guidance on how
the system works and when to call for help
can turn a taxpayer's oncoming tragedy into
a success story. ■

Arnold van Dyk is a licensed California
attorney and currently serves as the
Director of Tax Services at TaxAudit,
the largest tax representation service
in the country offering both audit representation and tax debt relief services.
In this role, he oversees more than 150
tax professionals, and assists taxpayers
with IRS representation and assesses the complexities
of the tax law and regulations to determine the best
strategies for audit and tax debt resolutions. Arnold
also operates his own law practice, Law Offices of
Arnold van Dyk, focusing on tax and estate planning.

AUGUST 2020 ■

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