It’s the end of the week. You’ve worked hard and are ready to receive your paycheck but, when the check comes your employer hands you something else. That’s when you find out your next paycheck is going to be garnished. Perhaps you’re aware you owe back taxes to the IRS but haven’t figure out a solution. You look at the notice your employer handed you and it’s not the IRS come to collect. Instead, it’s the Franchise Tax Board (FTB). Much like the IRS, FTB is able to take different types of collection action against taxpayers for unpaid taxes; one of the most common being a wage garnishment. In fact, the FTB may actually be more difficult to deal with than the IRS for a number of reasons.
What Can The FTB Issue A Withholding Order For?
1) Earnings Withholding Order for Tax: This is a wage garnishment that is sent to your employer due to you owing back taxes to the FTB. This will be the main focus of this blog.
2) Earning Withholding Order for Vehicle Registration: This is a wage garnishment that is sent to your employer due to you not paying your vehicle registration.
3) Earning Withholding Order for Court-Ordered Debts: This is a wage garnishment that is sent to your employer due to you not paying money owed to a California Court.
How Much Can Be Garnished?
The FTB will generally garnish up to 25% of your disposable income from each paycheck until the debt is paid in full. Your disposable income is any income after deductions for federal income tax, social security, state income tax, and state disability. Your employer is also required to provide you with a copy of the withholding order within 10 days of receiving the order. In this withholding order you should receive:
1) The reason for the wage garnishment (amount owed and the tax year the debt comes from).
2) The amount that will be garnished and how the calculation was made.
3) Possible exemptions from the garnishment you may be eligible for and the instructions on how to apply for these exemptions.
For more information on FTB wage garnishments see Wage Garnishment/Earnings Withholdings for Employers.
How Can An FTB Wage Garnishment Be Lifted?
The simplest way to have a garnishment lifted is to pay the balance in full. Depending on the amount that is owed, this may not be feasible.
If you qualify for a financial hardship and can provide substantiating evidence (bank statements, pay stubs, bill statements, etc.), this may be the best way to have a wage garnishment lifted. However, not everyone will qualify for this. Additionally, the FTB is extremely stingy when it comes to releasing an order to withhold.
When a taxpayer doesn’t qualify for a financial hardship the options become limited. The FTB does have an Offer in Compromise program to settle tax debt but, the likelihood of this being accepted is very low. This is due to the fact that the FTB has 20 years to collect tax debt from a taxpayer. A more cynical view is that California needs the money and therefore, they are less willing to settle for less. Accordingly, the other alternative is setting up a payment agreement.
Now, this is where it gets tricky. The FTB has two different payment agreements. One that requires a tax lien be filed and one that does not. If the FTB has not already filed a tax lien, you may be able to enter into a payment agreement that will prevent this from happening. However, this will most likely result in a higher payment each month (perhaps even more than what is garnished from your wages).
The alternative is to enter into a payment agreement that requires you to provide financial information. This financial information is used by the FTB to determine what amount you can afford to pay each month. Entering into this type of payment agreement will generally come with a lien being filed (depending on the balance due) but, it will lift the garnishment. Something to consider is whether leaving the garnishment in place is cheaper than entering into a payment agreement. However, not entering into a payment agreement will leave you open to other collection action such as a bank levy. More information on FTB installment agreements can be found in the Revenue and Taxation Code of California (“RTC”) § 19008.
Having the FTB garnish your wages can sometimes be even more difficult to deal with than the IRS. Many times, they assess tax debt quicker, giving them a head start on collection action. Once a garnishment is in place it can take time to have it lifted if you are unable to enter into a payment agreement that doesn’t require you to provide financial information. Having a tax professional who has dealt with these situations can give you an advantage and even cut down the time it takes to have the garnishment lifted. The best course of action though is to address collection notices you receive before the garnishment is put in place.