A wage garnishment issued by the IRS is processed by an employer somewhat differently than other garnishments. Employers who receive a notice of levy from the IRS have a specified time period in which to respond to an IRS levy and submit the requested garnishment amounts.
Unlike most other issuers of levies, the IRS is not required to obtain a court order. A wage garnishment may be received by an employer with no prior notice. Although the employee has likely had prior correspondence with the IRS regarding the tax matter, the responsibility for processing the levy falls on your company when an IRS levy is received.
Official notice of levy
At some point in the tax collection process, the IRS has the authority to issue Form 668-W(ICS) or Form 668-W(C)(DO). The form is an official notice of levy and is likely to be received by certified U.S. mail. The levy form consists of multiple pages, and some pages need to be quickly forwarded to the affected employee.
It is essential that your employee has the opportunity to claim all allowable amounts that are exempt from the levy. From the date you receive the certified letter, your employee has three days to complete the employee portion of the form to claim allowable exemptions. The employee selects a filing status and enters the name and Social Security number for each of their dependents.
Calculation of garnishment
Along with the notice of levy, you also receive a copy of IRS Publication 1494. Although most IRS publications are lengthier, Publication 1494 consists of a single page and is used to determine the exact exempt amount. The exempt amount is based on filing status and number of exemptions. If your employee does not complete the form, only one exemption is allowed, and the exempt amount is calculated as if the employee is married filing separately.
Other levy factors
If your employee is already subject to a garnishment for child support, an additional exemption is not allowed for the same child. An additional exemption is allowed if your employee or their spouse is at least age 65 or blind.
An IRS garnishment remains in effect until the tax is fully paid or the IRS releases the levy. Employees subject to tax levies sometimes enter into a direct payment agreement with the IRS in order to obtain a levy release.
As an employer, you are allowed a full pay period after receiving a levy to send in the first garnishment amount. Each payment is made by mail on the same day the employee is paid. The check is mailed to the address provided with the notice of levy. Contact an accountant for more information about payroll services (such as one from Blueback Accounting) and the processing of wage garnishments.