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How to calculate tax levy

how to calculate tax levy

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IRS Criteria

The employer should educate himself on what a tax levy is and why the IRS is taking the action. The IRS generally imposes a tax levy when three criteria have been met: they evaluated the tax and sent the debtor a Notice and Demand for Payment, the debtor did not pay the tax, and it forwarded him a levy notice. The debtor has 30 days from the levy notice date to file an appeal.

Employer Responsibility

As an employer you are required to begin the withholding as ordered by the IRS. Typically, the employer is required to begin the withholding on the upcoming pay period. Because levies are time-sensitive, you should establish proper internal procedures regarding levies. Ensure that the mail-handling department knows that levies should be forwarded to the appropriate personnel (for example, the payroll department) immediately upon receipt.

Give the employee the Statement of Exemptions and Filing Status paperwork to complete, sign and return to you within three workdays. If the employee claims that she does not owe

the levy amount and requests that you not make the withholding, do not comply with her request. You are obligated by the IRS to make the withholding unless it notifies you to do otherwise. Further, once you have received a wage levy, the employee cannot submit a revised Form W-4 to change her taxes.

According to the U.S. Department of Labor, Wage and Hour Division, it is unlawful to fire an employee because she has one wage garnishment filed against her. However, the law does not protect an employee from termination if she has two or more garnishments.

Levy Calculation

Make the calculation based on the employee’s income and his Statement of Exemptions and Filing Status information. You must also use the IRS Publication 1494 for the appropriate year to determine how much money is exempt from the levy. To determine the levy amount, subtract the employee’s statutory deductions (taxes) from his gross pay, subtract any other existing garnishments such as child support and subtract his voluntary deductions such as health benefits. The result is his disposable earnings.

Category: Taxes

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