An IRS wage levy does not have to result in the loss of all of your paycheck.
The Internal Revenue Code has exemptions that can protect your earnings from an IRS levy.
These “exemptions” are listed in Section 6334 of the tax code, appropriately titled “Property Exempt from Levy.” Think of exemptions as protections in certain property that the IRS cannot take from you. Exemptions to the IRS include your household goods and clothing; your house is also protected if you owe the IRS less than $5,000. This property is yours, protected from the IRS.
There are also exemptions that protect your wages from IRS levy. The amount protected is a factor of how many dependents you claim on your tax return, your filing status and how often you are paid. Every year, the IRS publishes a table that shows the protected amounts (Publication 1494).
For example, if you are married, file jointly, paid bi-weekly, and claim four exemptions (say, you, your wife, and two children), the IRS could not take $1,042.31 from your paycheck. If the IRS sent a levy to your employer, and you properly completed the paperwork claiming the exemptions, you would receive $1,042.31 before the IRS got anything.
Another example: If you are divorced, and file as head of household for you and your two children, and get paid monthly, you have $1,675 of your paycheck protected from the IRS.
These numbers are net, meaning it is what you keep after your taxes, health insurance, and other necessary payroll deductions are taken out. The protections are for what is left for you, giving you a certain amount of money to live off.
It is important to calculate the exemptions when formulating a solution to your IRS debt. In some situations, for example, providing the IRS with a financial statement showing what you earn and spend can result in an installment agreement that has you paying more to the IRS than you would after claiming exemptions against a wage levy. This is often the case in two-income earner households but only one spouse owes the IRS, or if you work two jobs.
If you have a wage levy, or are contemplating solutions to your IRS problem, it is important to know and understand the protections that you have against the IRS levying your property.