The holidays are great for many people, as they get holiday bonuses and year-end bonuses that they can spend any way they want. These are often used to buy presents, take trips and pay off debts. It’s a good way to start the new year.
That’s not true if you owe back taxes to the Internal Revenue Service and they’ve been garnishing your wages. They are allowed to take 100 percent of your bonus to put it toward what you owe.
When the IRS starts garnishing your wages, they think of the entire paycheck as “theirs.” They then apply deductions and say that some of the money is exempt. They keep all of the non-exempt money and send the rest on to you. The idea is to catch you up on the taxes, not to run you out of your home by taking all of the money you have to your name. They’ll still let money through so you can pay the mortgage, buy food for the family and the like.
However, when figuring out how much of your paycheck is going to be exempt from garnishment, they base it on what you need to have rather than the percentage of the full check.
For example, perhaps you’re paid $5,000 per month and they are allowing $3,000 a month to go on to you. You think you’re getting three=fifths of your paycheck, so you should get three=fifths of the bonus. However, the IRS simply thinks you need $3,000 that month. If you’re paid an extra $2,000 as a bonus on top of your $5,000 salary, they’ll still just let $3,000 through.
As you can see, the IRS has a lot of power in these situations. That’s why it’s critical to know about all of the options you have as you work to stop those garnishments from your wages.
Source: IRS, “Information About Wage Levies,” accessed Nov. 23, 2016