While the thought of your boss or HR finding out you owe back taxes can be anxiety-inducing, understand that the IRS won’t contact your employer the moment you get behind on your taxes. During the early stages of collection, the IRS will only send letters to you, not your place of employment.
Things can change, however, if you ignore these notices. Failing to work with the IRS to resolve your unpaid tax balance can result in the IRS escalating the tax collection process and issuing a wage levy. At this point, the IRS will inform your employer about your unpaid taxes. Responding promptly to the IRS is the best way to protect yourself and your reputation.
To learn more about how to prevent your employer from learning about your unpaid taxes, talk to a tax attorney from Wiggam Law. You can schedule a consultation online or by calling (404) 233-9800.
Key Takeaways
- The IRS won’t contact your employer at first. The IRS starts the collection process by sending you reminder notices, such as CP14 and CP501.
- Work with the IRS to avoid a wage levy – You can avoid a wage levy by making arrangements with the IRS to pay your tax debt after receiving these notices.
- IRS Form 668-W – The IRS uses this form to inform your employer about the need to garnish your wages and how to do so.
- Filing an appeal – You can appeal the garnishment by requesting a Collection Due Process (CDP) hearing or through the Collection Appeals Program (CAP).
- Levy release – If the wage garnishment is creating an immediate economic hardship, the IRS must release the wage levy.
How the IRS Collection Process Works
Long before the agency begins tax collection efforts that might inform your employer of your tax situation, the IRS sends several “reminder” letters and notices. These offer a chance to become compliant with your taxes and avoid your employer from knowing there’s a problem. Here’s a rundown of the process you can expect:
- First notice: The first thing that happens is the IRS sends you a CP14 notice, stating that you owe the IRS money.
- Reminder notices: If you ignore the first notice, you’ll receive at least two reminder notices. First, there’s the CP501 notice, and then the CP503 notice.
- Final notice: Failing to respond results in a final notice. That is the Notice of Intent to Levy and usually takes the form of a CP504 notice, LT11, or LT1058.
You may be tempted to bury your head in the sand when you get any of the above notices, but this is the worst thing you can do. Each of these notices provides an opportunity to respond to the IRS and establish a payment arrangement. You’ll receive notices several months before the agency takes any official action against you. Don’t waste your chance to avoid it.
When Does the IRS Contact Your Employer?
Instituting a wage levy is when the IRS will contact your employer directly concerning your unpaid taxes. After the IRS exhausts the above options, the IRS then sends Form 668-W to your employer. Note that the actual name of this form may vary slightly, but should contain the numbers “668” somewhere on the form.
This can be embarrassing, as human resources, payroll staff, and even the business owner could learn about your tax debt. The 668 form has clear instructions for your employer about withholding a portion of your wages to repay the IRS. Your employer can’t ignore this notice, as doing so could result in significant financial consequences for the employer.
How a Wage Levy Works
Once your employer receives Form 668, the levy occurs quickly, with your employer having to withhold some of your wages within one or two pay periods. The exact amount taken out of each paycheck will vary, depending on the size of your garnishment exemption.
This exempt amount depends on your current tax filing status and how many dependents (if any) you have. In theory, what’s left from each paycheck should be enough to cover your basic living expenses.
While the HR manager or your boss may not speak to you about this directly, they’ll be fully aware of the situation. For many people, this exposure can make them uncomfortable at work.
The Added Risk for Job Seekers
Job applications may also ask about wage garnishments, and employers may conduct background checks that could reveal any liens against you. If the employer discovers that you’re behind on your taxes, it can ruin your chances of landing a job with them.
When you’re starting a new job, your new employer may receive a wage garnishment notice after hiring you. That could impact your reputation at work before you’ve even had your first day.
Ways To Stop the IRS from Telling Your Employer
If you’ve got behind on your taxes and don’t want it to affect your work, you must act quickly. There are some preventive steps you can take immediately, such as responding to the CP504 or LT11 notices. Any communication shows the IRS that you intend to comply with them, which can work in your favor.
When you’ve done that, the next step is to explore resolution options that either stop or pause collection activities. Working with a tax professional is the best way to navigate this process. Let’s take a look at some of the approaches you may be eligible for.
Filing an Appeal
You can appeal a proposed wage levy through the Collection Appeals Program (CAP) or with a Collection Due Process (CDP) hearing. Both options allow you to temporarily pause IRS tax collection efforts while the IRS reviews your case. One of the ways these appeal options differ is in timing. Specifically, the ability to file a CAP appeal usually comes before you have the chance to request a CDP hearing.
Installment Agreements
Installment agreements allow you to pay off your tax debt with manageable monthly payments. Arranging an agreement with the IRS usually stops any levies from occurring.
Currently Not Collectible (CNC) status
If you qualify for CNC status, the IRS temporarily pauses any collection action against you, including wage levies. To be accepted for this status, you’ll need to prove that you’re experiencing financial hardship. While the agency stops attempting to collect your debt, the interest and penalties continue to accrue. If your financial situation changes, you’ll no longer keep your CNC status, and collection enforcement actions will resume. The IRS reviews your finances frequently to reassess your CNC status eligibility.
Offer in Compromise (OIC)
If there’s no way you can realistically repay the total sum of your tax debt, you might be eligible for an Offer in Compromise (OIC). If the IRS accepts your OIC, you can settle your entire tax bill for less than the full amount.
Emergency Strategies
When the IRS has already filed a levy, the best way to stop it is to either pay the entire tax debt or make other payment arrangements (such as an installment agreement). Below are other relief options to consider.
Apply for Penalty Abatement
Should penalties make up a large amount of your tax debt, this option can provide you with some relief. You may be eligible for a first-time penalty abatement so long as your tax compliance history is clean. A tax attorney understands this process and can help you negotiate with the IRS.
Ask for a Levy Release
If you’re facing immediate economic hardship, you may be able to ask the IRS to release the levy. An immediate economic hardship exists if the wage garnishment prevents you from paying for basic living necessities, such as food, rent, or medications.
Why Hiring a Tax Pro Matters
Whatever route you choose to go down, hiring a tax pro is the best way to protect yourself. Not only can they help you navigate the trickier side of tax resolution, but they can also help you resolve the debt discreetly. Acting fast means your employer may never need to know about it.
At Wiggam Law, we understand the importance of your privacy. Contact us online or by calling (404) 609-1300, and we can help you take control now to protect your income and your professional reputation.
FAQs
Will a new employer be notified?
Yes. As soon as the IRS figures out that you have a new employer, they will send a wage garnishment notice to the employer. Switching jobs is not an effective way to stop a wage garnishment.
How does the IRS contact you?
The IRS will typically send notices via mail. Some letters may be sent from private collection agencies. If your case is escalated, a Revenue Officer (RO) may contact you.
Can my employer fire me because of the wage garnishment?
It depends. The Consumer Credit Protection Act (CCPA) prohibits an employer from firing an employee because of any single debt resulting in a wage garnishment. But if there are multiple wage garnishments for multiple debts, CCPA protections against termination may not apply to all of the wage garnishments, and state law varies.
Sources:
https://www.dol.gov/agencies/whd/fact-sheets/30-cppa
https://www.taxpayeradvocate.irs.gov/notices/collection-appeals-program-cap
https://www.irs.gov/businesses/small-businesses-self-employed/information-about-wage-levies
https://www.irs.gov/businesses/small-businesses-self-employed/what-if-a-levy-is-causing-a-hardship
https://www.irs.gov/businesses/small-businesses-self-employed/what-if-i-get-a-levy-against-one-of-my-employees-vendors-customers-or-other-third-parties
https://www.irs.gov/businesses/small-businesses-self-employed/information-about-wage-levies
