Monday, July 21, 2008

The IRS's 1099 Bank Garnishment of Wages

Because creditors collect settlements direct from paychecks, salary garnishment is a tough situation for people in debt. People can get their wage garnished for a multitude of reasons.

Wage can be collected automatically from a person's paycheck or other income sources when a verdict is decided. For the following reasons, wage can be garnished:

* Debt to credit card companies.
* Unpaid child support.
* Court fines owed.
* Unpaid taxes.
* Student loans in arrears.
* Other debts.

Varying in each state, federal law caps garnishment at 25%. Some states provide garnishments of lower amounts, while states like Texas, South and North Carolina, and Pennsylvania don't allow garnishment. If income is insufficient, there's a specific heirarchy for garnishments to be collected: federal, then state, and finally, credit cards.

Here's the procedure that the IRS follows when garnishing salary:

* Serve a Notice or Demand for Payment.
* At least thirty days before garnishment, a Final Notice is served. A lot of people don't know their wage will be garnished because these do not have to be served in person and often not received.
* Unless other payment deals are made, salary is garnished until debt is settled in full. Garnishment can't be declined.

To declare income to the IRS, companies that employ freelancers or private contractors should file a 1099 form. Taxes are computed by the 1099 freelancers themselves.

If an employee has his wage garnished, the employer has no choice but to take the settlement out of the paycheck. If the employee quits and becomes a freelancer or a 1099 independent contractor, then the employer is definitely released from that obligation. Instead of garnishing wage from an employer, the credit can levy the contractor's accounts receivable. This means that when an independent contractor receives a check from a company for work, the bank account can be levied.

Money in the account is frozen and collected when a bank account is levied. This is most commonly done by the IRS, though other creditors can do it, too. Creditors can levy bank accounts unless the dues are paid.

Bank levies or garnishment of wages are tough situations. Get IRS help from a seasoned tax lawyer like Darrin T. Mish before debt gets beyond control.


DurwinWilson said...

If You can voluntary payment arrangements rather than disguise your wages. You can also ask the court to seize the terms can be changed, for example, may reduce the amount collected, if it is in a very negative way affect your financial position.

Wage Garnishments

Kate Dunkin said...

Great post, this was such a interesting read. I was doing some research online about irs wage levy's because I wanted to know what options are out there. That's how I came across this informative post, thank you for sharing this with us!