IRS Installment Agreement and Payment Plans - Is it an Ideal Solution to Wage Garnishment?

A wage garnishment, unlike other type of levies can have serious impact on your financial wellbeing. The Internal Revenue Service takes away a major part of your salary and will leave only very few hundred dollars for your expenditures. The exact money you're going to get will depend upon on your claims for exemptions on W-4, the state you reside in and few other things. So regardless of your salary, you're going to get not even one- third of it. During these times, many taxpayers will agree to IRS installment agreement to stop the levy. In this article, we will explain whether or not the installment agreement is the best solution to solve an IRS garnishment. 

Now your wage is levied and you immediately contact the IRS and ask them the best way to eliminate it. The first question they will ask is whether you can settle all of the dues in a single shot. If not, the IRS will come up with an installment agreement where the exact amount will depend on certain factors. For that, be prepared to provide detailed financial information of yours by completing a form 433-A or 433-F.

Forms 433-A,433-B, and 433-F provides the IRS the list of your earnings that will be used to determine your monthly installment. Your average income and living expenses, bank accounts, property you own and other financial obligations have to be entered on this form. Using this information, the IRS will compare your earnings with your monthly expenditures to figure out a monthly payment plan that will work in your situation. 

According to IRS manual, only certain expenses are allowed to claim. As an example, consider your monthly bill comes around $2000. But IRS will estimate based on their stipulated guidelines such as the place you live, average rental cost in your state and so on. They will come to you and say that your expenditures can only be around $1200. The IRS will further say that you have the ability to pay $800 a month. They don’t care whether you have the money to pay for or afford the estimated amount every month. If you tell the IRS that that you will be evicted if you don’t pay the full rent of $1000 a month, the IRS will simply say, “move to a cheaper place ". 

You will have to find a way to make the IRS accept a higher allowed expense in order to meet your basic needs. If it can be proven that there is a need for specific kind of housing, the IRS will accept the number that is beyond the allowable limit. But this is quite difficult and it is best handled by a tax lawyer with expertise with negotiating with the IRS.

Suppose if you use part of your house for running your business, you can claim for extra expenditures since you require a much larger house for your needs. If you have special needs for mobility friendly homes and if you can’t find a home with all the needed facilities at a cost fixed by the IRS, then additional expenses are allowed to claim.

However you cannot claim for higher expenses when the IRS thinks that it is not required. Suppose you happen to be living in a house which costs multi- million dollars and for that you're paying out monthly mortgage of $10,000. Here, IRS can't sanction for an extra $7200. They want to remove the mortgage payment from your monthly bill by asking you to move to a cheaper house. IRS gives time (around one year) to find an appropriate home which will also save you from foreclosures and thereby avoiding the negative impact on your credit history.

Bear in mind, there is always a limit on the permitted expenses. But under certain situations, it's possible to request for higher allowance to maintain the minimum standard of living. Some of the expenses that you may claim for include health care expenditures, kid’s education, any secured loan, other tax commitments such as the state property taxes and transportation costs.

You will be responsible in figuring out the basis expenses and showing it correctly to the IRS, if not don’t get surprised to see an unaffordable repayment plan from the IRS. When this occurs, the taxpayer will certainly be pushed into distressing situations. Either they no longer can make monthly payment for installment agreement or else they will start to default taxes for the current year. During these situations, the installment agreement will be terminated and IRS will begin garnishing wages again.

To protect yourself from this entire nightmare, it is best to get educated. If you want to stop the garnishment successfully, you need to follow a 7 step plan. Just click here to learn how to safeguard yourself from IRS wage garnishments and find a permanent way out of an IRS tax problem.