IRS

[mspatti]

My son-in-law settled an IRS debt a year ago when he owned a roofing company. He's making large payments and they're drowning. He's closed his company as it was failing and they cannot afford to make these payments. Is there ever a time a case like this would be reopened and resettled? Is bankruptcy an option?

 

[quincy]

What is the name of your state? What is the name of your son-in-law's state?

 

[LdiJ]

My son-in-law settled an IRS debt a year ago when he owned a roofing company. He's making large payments and they're drowning. He's closed his company as it was failing and they cannot afford to make these payments. Is there ever a time a case like this would be reopened and resettled? Is bankruptcy an option?

How much income do they have without his roofing company? How high is the monthly payment?

 

[mspatti]

What is the name of your state? What is the name of your son-in-law's state?

What is the name of your state? What is the name of your son-in-law's state?

Georgia for both. His monthly income before taxes is $5500 and monthly payment to the IRS is $2300.

 

[LdiJ]

Georgia for both. His monthly income before taxes is $5500 and monthly payment to the IRS is $2300.

Ok, then he owes the IRS a LOT of money. He can try for a reduction of the payment plan but you did not answer my question. I asked how much income THEY had, not how much income HE had. Unless your daughter is deceased, what she makes matters as well.

 

[Taxing Matters]

My son-in-law settled an IRS debt a year ago when he owned a roofing company. He's making large payments and they're drowning. He's closed his company as it was failing and they cannot afford to make these payments. Is there ever a time a case like this would be reopened and resettled? Is bankruptcy an option?

If his income no longer supports being able to pay the current installment agreement he can ask the IRS to reduce it. It is better to do that before he starts missing payments, if possible. Is any state tax also owed?

Whether bankruptcy might help him depends on several factors. The first issue is whether the taxes are dischargeable in a Chapter 7 bankruptcy. What kind of tax is owed — income tax, federal employment taxes for the withholding from employees & unemployment taxes (forms 941 & 940 respectively), or something else? And how long ago were the returns for those taxes filed? Even if the taxes are not dischargeable in a Chapter 7 he still might get relief in a Chapter 13 plan. Chapter 13 has the debtor make payments on the debts he or she owes to the bankruptcy trustee for a period of typically 5 years. It may be that he could get lower payments and a better outcome over all with a Chapter.

Knowing the household income, the total amount of the tax owed and the type of taxes involved, and what other debts they had would be needed to help sort out their options. He might want to see a bankruptcy attorney if they have a lot of debt to see if bankruptcy might be a good option.

 

[mspatti]

Ok, then he owes the IRS a LOT of money. He can try for a reduction of the payment plan but you did not answer my question. I asked how much income THEY had, not how much income HE had. Unless your daughter is deceased, what she makes matters as well.

My daughter is not employed. She's been a stay-at-home mom for 30 years and doesn't have much in the way of employable skills.

 

[LdiJ]

My daughter is not employed. She's been a stay-at-home mom for 30 years and doesn't have much in the way of employable skills.

Ok, then he should have a shot at getting the monthly payment reduced. In my opinion his best bet would be a sit down appointment with the nearest IRS office. There should be a local office somewhere near him.

If you go here: https://www.irs.gov/help/contact-my-local-office-in-georgia

you will find the local offices for GA. You will have to type in the address, its not a link.

Edited to add: I lied, it IS a link after all.

 

[Zigner]

Edited to add: I lied, it IS a link after all.

The updated forum software does that now

 

[LdiJ]

The updated forum software does that now

Yippee!!!

 

[PayrollHRGuy]

This is mainly aimed at @Taxing Matters as a follow up that might open up options.

The normal IRS garnishment is limited to 25% of income. If the OP's son stopped paying the agreed upon amount would the IRS garnish his wages or would they do something worse considering what he is not paying is an agreement?

 

[LdiJ]

This is mainly aimed at @Taxing Matters as a follow up that might open up options.

The normal IRS garnishment is limited to 25% of income. If the OP's son stopped paying the agreed upon amount would the IRS garnish his wages or would they do something worse considering what he is not paying is an agreement?

That is not correct. Up until now the IRS has been able to garnish a persons paycheck for everything after the pay period value of the number of personal exemptions in the family. I do not know what kind of criteria they will use now that there are no more personal exemptions.

I will use this guys 5500.00 monthly income as an example. If the personal exemption for he and his wife were 4100.00 each, total 8200.00 then 8200.00 divided by 12 months would equal 683.00. That means that the IRS could garnish 5500.00 minus 683.00 = 4817.00. This is the reason why one needs to avoid garnishment at all costs.

However, you would be correct if you were talking about SS benefits. The IRS can only garnish 25% of those.

 

[PayrollHRGuy]

You are correct @LdiJ I looked at the wrong page of the handbook I wrote.

 

[Taxing Matters]

That is not correct. Up until now the IRS has been able to garnish a persons paycheck for everything after the pay period value of the number of personal exemptions in the family. I do not know what kind of criteria they will use now that there are no more personal exemptions.

Technically there are still exemptions; but for the tax years 2018 through 2025 the amount of the deduction for those exemptions is zero. Under IRC § 6334(d)(1) & (2) the exempt amount allowed the taxpayer when weekly wages were levied was determined prior to the new tax law by taking the total of the amounts allowed the taxpayer for personal exemptions plus the amount allowed for the standard deduction and dividing that total by 52.

Of course, as I noted the exemption amount is now zero, but the standard deduction is significantly bigger to offset that. So the taxpayer would still have gotten some of his wages exempt from the levy even after passage of the tax law had Congress not touched the exempt amount. But Congress did fiddle with that too. It added a new paragraph (d) which states that for any year where the exemption amount is zero the taxpayers weekly exempt amount from wages is now the total of $4,150 x the number of dependents + the standard deduction and then that total is divided by 52. (And for future years that $4,150 is indexed for inflation.) Note the subtle difference here: the Congress substituted the word dependents instead of exemptions. This means that the taxpayer and his spouse are not counted in determining the amount exempt from the levy as they were prior to the change in the law. That is because of the much larger standard deduction. What this means is that single taxpayers and those with small families would see more wages exempt now than before, but those with large families might see less exempt.

I will use this guys 5500.00 monthly income as an example. If the personal exemption for he and his wife were 4100.00 each, total 8200.00 then 8200.00 divided by 12 months would equal 683.00. That means that the IRS could garnish 5500.00 minus 683.00 = 4817.00. This is the reason why one needs to avoid garnishment at all costs.

You did not include the standard deduction in your example. The personal exemption in 2017 was $4,050 and the standard deduction for married filing jointly was $12,700. So if we had a married taxpayer who files jointly and they have two kids who qualify as their dependents. That gives them 4 exemptions. So had the levy been served in 2017 the weekly exempt amount would be (4 x $4,050 + 12,700)/52 = $555.77.

Under the formula in effect for 2018, they would have two dependents and are married filing jointly, so the weekly exempt amount for a levy served in 2018 would be: (2 x $4,150 + $24,000)/52 = $621.15. Thus, the new law for this family would mean that they would have $65.38 more exempt from levy each week.

Note that the exempt amounts are determined in the year the levy is served and do not get adjusted if the levy continues into following years.

However, you would be correct if you were talking about SS benefits. The IRS can only garnish 25% of those.

That’s not correct. Under IRC § 6334(a)(11) no amount of SSI income is subject to levy at all. Social Security retirement and disability benefits subject to the same exempt amount as for wages. IRC § 6334(a)(9). Note that if the taxpayer has income from multiple sources he is entitled to no more than the exempt amount discussed above; that is, if he is getting the full exemption on his wages, for example, then the IRS can take ALL of the Social Security retirement benefits. The problem with Social Security levies is this: it requires a revenue officer to prepare, get approved, and serve a new levy on SSA each month, and then SSA then has to manually adjust the SSA payment. It is a pain in the butt for both agencies. As a result, Congress passed an act in 2002 that provides for a continuing offset of Social Security for federal taxes of 15% of the benefit amount. As this is done all through computers, it is very easy for both agencies to do. As a result, the IRS now will use that offset program when it wishes to attach Social Security except in more extraordinary circumstances in which a revenue officer determines the levy of more than 15% is necessary.

Federal law generally limits garnishment of wages for non-government debts to 25% of net wages. That’s where the 25% figure PayrollHRGuy mentioned comes from.

 

[LdiJ]

Technically there are still exemptions; but for the tax years 2018 through 2025 the amount of the deduction for those exemptions is zero. Under IRC § 6334(d)(1) & (2) the exempt amount allowed the taxpayer when weekly wages were levied was determined prior to the new tax law by taking the total of the amounts allowed the taxpayer for personal exemptions plus the amount allowed for the standard deduction and dividing that total by 52.

Of course, as I noted the exemption amount is now zero, but the standard deduction is significantly bigger to offset that. So the taxpayer would still have gotten some of his wages exempt from the levy even after passage of the tax law had Congress not touched the exempt amount. But Congress did fiddle with that too. It added a new paragraph (d) which states that for any year where the exemption amount is zero the taxpayers weekly exempt amount from wages is now the total of $4,150 x the number of dependents + the standard deduction and then that total is divided by 52. (And for future years that $4,150 is indexed for inflation.) Note the subtle difference here: the Congress substituted the word dependents instead of exemptions. This means that the taxpayer and his spouse are not counted in determining the amount exempt from the levy as they were prior to the change in the law. That is because of the much larger standard deduction. What this means is that single taxpayers and those with small families would see more wages exempt now than before, but those with large families might see less exempt.



You did not include the standard deduction in your example. The personal exemption in 2017 was $4,050 and the standard deduction for married filing jointly was $12,700. So if we had a married taxpayer who files jointly and they have two kids who qualify as their dependents. That gives them 4 exemptions. So had the levy been served in 2017 the weekly exempt amount would be (4 x $4,050 + 12,700)/52 = $555.77.

Under the formula in effect for 2018, they would have two dependents and are married filing jointly, so the weekly exempt amount for a levy served in 2018 would be: (2 x $4,150 + $24,000)/52 = $621.15. Thus, the new law for this family would mean that they would have $65.38 more exempt from levy each week.

Note that the exempt amounts are determined in the year the levy is served and do not get adjusted if the levy continues into following years.



That’s not correct. Under IRC § 6334(a)(11) no amount of SSI income is subject to levy at all. Social Security retirement and disability benefits subject to the same exempt amount as for wages. IRC § 6334(a)(9). Note that if the taxpayer has income from multiple sources he is entitled to no more than the exempt amount discussed above; that is, if he is getting the full exemption on his wages, for example, then the IRS can take ALL of the Social Security retirement benefits. The problem with Social Security levies is this: it requires a revenue officer to prepare, get approved, and serve a new levy on SSA each month, and then SSA then has to manually adjust the SSA payment. It is a pain in the butt for both agencies. As a result, Congress passed an act in 2002 that provides for a continuing offset of Social Security for federal taxes of 15% of the benefit amount. As this is done all through computers, it is very easy for both agencies to do. As a result, the IRS now will use that offset program when it wishes to attach Social Security except in more extraordinary circumstances in which a revenue officer determines the levy of more than 15% is necessary.

Federal law generally limits garnishment of wages for non-government debts to 25% of net wages. That’s where the 25% figure PayrollHRGuy mentioned comes from.

I appreciate some of the detail that you have provided from the new tax laws on how the are going to be calculating the amount that can be garnished. I had not seen that yet.

I will also believe you that the standard deduction is also included, although that is not how I remember it from the last few people I had that got garnished.

However, I currently have several clients with garnishments on their SS Retirement benefits and its 25% on all of them.