If you are behind on your taxes, the IRS may take action to garnish your bank account. This means they will take money out of your account to pay off what you owe.
It can be a scary experience to have the government take money out of your bank account, but it is crucial to understand why and how it happens.
This article will discuss bank account garnishment laws by state and what you need to know if the IRS comes knocking on your door.
How long does it take to garnish a bank account?
If a bank receives the notification of a levy, it must freeze the debtor’s account immediately. You can’t withdraw money when this happens, and any outstanding payments or checks won’t clear if you don’t have enough remaining funds.
The creditor’s funds are kept secure by the automatic freeze since early notice allows the debtor to withdraw their money.
Bank account garnishment exemptions
Federal legislation protects certain assets from being sent to creditors, even if the court orders them. These funds include:
Social Security and Supplement Social Security Income (SSI).
- Veterans” benefits.
- Federal, civil service, and railroad retirement benefits.
- Student loan and financial aid.
- FEMA aid.
These funds are always protected from seizure.
Direct deposits and bank levy laws by state
If you’re trying to keep federal payments safe from a bank levy, it’s best to set them up for direct deposit into a different bank account.
A savings account linked to a direct deposit can’t be frozen automatically, like a regular bank account can, giving you advance notice of the levy.
If you still want paper checks for your benefits, they may be frozen. You’ll need to show that your money is exempt before it will be released to you if this happens.
Federal Exempt Funds
These funds are exempt from the bank account levy. However, there are certain situations in which they can be frozen.
It’s conceivable that your account will still be frozen if you owe a specific debt or have an overage of cash in your account.
The “Two-Month Rule” is an exception. If you have more than two months’ worth of benefits on deposit, a creditor may be able to seize your account. If this happens, you’ll be able to retain your two months of benefits, but the creditor may seize the rest.
If you owe various creditors and have outstanding debt, your account may be restricted. These are called “priority” debts because they are higher than other debts. They include:
- Child support.
- Spousal support.
- Federal taxes.
- Student loan debt.
- Debts, charges, or overdraft fees to a specific bank.
Bank account garnishment state exemptions
The state exemptions for bank account garnishment differ by state, as do federal exemptions. The types of money that are exempt from garnishment, the maximum amount of funds that may be claimed as exempt, and whether the account can be seized are examples of this.
However, there are a few exceptions that apply across most states.
State benefits
If state payments are levied and deposited into an account that is exempt, you may be entitled to tax-free funds in your account up to the amount of the benefits. The following state benefits qualify under this criterion:
- Public assistance.
- Workers compensation.
- State retirement benefits.
- Unemployment benefits.
- Disability benefits.
Other Exemptions from garnishment may include the following:
- Child support.
- Alimony.
- Certain insurance benefits.
- Retirement and pension benefits.
General exemptions
General exemptions are allowed in many states. These can be used to protect various assets, such as bank accounts, up to a specific limit. These are sometimes known as “wild card” exemptions and come in different amounts, from $500 to $10,000. They’re distinct from other deductions. In certain circumstances, it may shield the entirety of your bank account from seizure.
If you have a joint account with another person who does not owe the creditor, it may offer protection or restrict your exemptions.
Exceptions to State Exempt Funds
The state exceptions are comparable to federal exemptions in that personal financial obligations like back taxes, child support, or alimony may not be exempted. You may be rejected for an exemption claim if you cannot prove that the money you put into the account came from an exemption.
Bank account wage garnishment process
Wage garnishment is similar to a bank account seizure in that it is handled in court and necessitates the employer to comply with the decision.
Once the wage amount subject to garnishment is calculated for each pay period, the employer must withhold money until the judgment is settled or the garnishment is terminated.
It’s feasible to have another garnishment put on your wages once the first one has been paid, but it’s the same procedure. However, before the next can take effect, the previous garnishment must be entirely settled.
Federal back wage garnishment limits
If your wages are being garnished, the maximum amount that may be taken is 25% of your net income or the amount by which your income is more than 30 times the federal minimum wage, whichever is less under federal law.
This is calculated by deducting your taxes, such as federal and state income tax, Social Security payments, and pension deductions from your pay. This does not take into consideration optional deductions, such as charitable donations or savings accounts.
Up to 15% of your net income can be seized in the case of student loans in default. In addition, they must give you notice of garnishment ahead of time.
Child support and alimony
If you’re paying child support or alimony, up to 50% of your net income may be withheld to cover the obligation.
If you aren’t currently supporting a spouse or child, up to 60% of your net income may be seized. Another 5% can be taken if you’re 12 weeks or more behind on payments.
Experiencing a bank account levy or wage garnishment? We can assist you.
The IRS can issue a levy against your bank account. This is an unpleasant experience, but a tax lawyer can assist.
A tax lawyer will help you understand your debt and offer support for living debt-free. Call now to discover what they may do for you!
More: How to Remove a State Tax Lien from Your Credit Report
