If you owe the government money, such as back taxes or unpaid student loans, it can garnish your wages just like any other creditor. Unlike other creditors, the IRS or the Department of Education can garnish your paycheck without waiting for a court order. You may, however, be able to stop or at least reduce the amount collected.
If you default on your student loans, the federal government can garnish 15 percent of your paycheck or 30 times the minimum wage, whichever is smaller. If your loan holder has your correct address, it will notify you 30 days before it starts taking the money out. You can use the time to contact the loan holder and try to work out a payment schedule. If you want to challenge the garnishment, ask the Department of Education's Default Resolution Group for a hearing.
Your Education Department hearing gives you a chance to prove that your paycheck shouldn't be garnished. Rare circumstances, such as severe disability, might get your loan canceled completely. The next best option is to have the payments deferred or temporarily suspended on grounds of poor health or financial hardship -- for example if the payments are more than 20 percent of your income. If the department sides with your lender, you can appeal if you have new evidence to present.
If the IRS notifies that you it's applying a tax levy to your paycheck, you have 30 days from the date of the notice to take action. You can ask an IRS manager to review your situation, or file for an appeal with the IRS branch office listed on your notice. You can stop the levy by proving you've already paid the debt; that the statute of limitations on the debt expired; that it's your spouse's debt and you shouldn't be liable for it; or that the IRS didn't follow procedure.
Filing bankruptcy is a drastic step, but it will keep the government from garnishing your wages until the court wraps up your case. Bankruptcy may not, however, wipe out what you owe: You can only discharge your student loan debts, for instance, by proving your income has hit absolute rock bottom. Bankruptcy will, however, wipe out many of your other debts -- such as credit-card balances and medical bills -- so you may emerge with more money available each month to pay the government off.
- Nolo: If Your Wages Are Garnished: Your Rights
- Federal Student Aid Ombudsman: Tax Offset and Wage Garnishment
- Federal Student Aid Ombudsman: Administrative Wage Garnishment Process
- Nolo: Student Loans: Cancellation, Deferment, and Forbearance
- IRS.gov: Levy
- Nolo: How Bankruptcy Stops Your Creditors: The Automatic Stay