For a number of reasons, wages are garnished. Because creditors collect payment direct from paychecks, this is a serious matter for people in debt.
First, salary garnishment occurs after a judgment has been made against the defendant. As a result, the defendant’s paycheck is garnished. This means that money is directly collected from the paycheck (or other source of income) to be paid to the creditor or plaintiff. Wages are garnished by these common reasons:
* Unpaid child support.
* Taxes are unpaid.
* Unpaid court fines.
* Unpaid student loans.
* Credit card debt.
* Other dues.
Rules governing garnishment are diverse in each state, but federal law maintains the amount at 25% of the defendant’s current income. There is a specific heirarchy if income is not enough to allow for all garnishments. First, federal tax garnishments are taken, then state, and lastly, credit cards. Salary garnishment is not allowed in states like Texas, Pennsylvania, and South and North Carolina. Few states have a lower maximum amount they allow for garnishment.
The IRS process that should be complied with when garnishing wage are:
* First, a Notice and Demand for Payment is sent.
* A Final Notice is sent no more than 30 days before the garnishment will take effect. (Note: A lot of people don’t get the Final Notice because it does not need to be served personally. They may not be aware that their salary are going to be garnished.)
* Until other arrangements are decided for settlement or debt is paid off, salary will be garnished. Defendants can’t decline to have their salary garnished.
Private contractors who aren’t employees are given the 1099 form. If a company pays a private contractor $600 or more in a year, they need to file a 1099 form. These report income to the IRS. 1099 contractors deduct taxes themselves.
The employer has the responsibility to take settlement out of the paycheck if an employee’s salary is garnished. If the employee resigns and becomes a independent contractor or a 1099 freelancer, then the employer is obviously released from that obligation. The contractor’s accounts receivable can be levied by the credit, instead of garnishing wage. This means that the bank account can be levied when a private contractor gets payment from a company.
Money in the account is frozen and collected when a bank account is levied. This is most often done by the IRS, though other creditors can do it, too. Creditors can levy bank accounts unless the debt is paid.
Bank levies or garnishment of wages are tough matters. Before debt is beyond control, seek IRS help from an experienced tax lawyer such as Darrin T. Mish.
