Does a Levy on Wages by the IRS Affect Your Credit Score?

Published on Jun 13, 2014 10:04 am

An Internal Revenue Service wage levy is very serious business. If you owe the IRS money and you don’t work out a plan to either pay the IRS or contest that you don’t owe the money, the agency can move to collect what it thinks you owe. The IRS’s collection can hurt your credit score, and having a large portion of your income going to the IRS can do even more damage in the long run.

Introduction to IRS CollectionsIf you owe the IRS and don’t send in a check by April 15, the agency may start sending you bills and offer to work out a payment plan with you. Eventually, if you can’t come to an arrangement with the IRS, it has the option of filing a federal tax lien. The lien gives the IRS the right to take your future tax refunds, and seize your bank or investment accounts. This action could damage your credit score.

How Garnishment WorksIf the IRS decides to garnish your wages, you can be notified and given an opportunity to make payment arrangements before it happens.  On the other hand, the government doesn’t have to get a judgment first in order to start the garnishment process.

Collateral DamageIf you don’t have a lot of bills to pay, damage to your credit might come from the lien itself. However, it could be possible to have so much taken from your income that it makes it difficult to pay other bills. Not paying your other debts could cause those accounts to go into delinquency. These delinquencies could harm your credit score even more. The IRS could also seize your bank account, making it impractical for you to pay your bills.

Managing a LevyThe IRS doesn’t have to levy your wages. Before it starts garnishing your pay, it has the option of making multiple attempts to contact you. If you work with the IRS when it contacts you, you may be able to avoid a levy. Once the IRS starts garnishing your wages you may have the option of contacting it to work out a payment arrangement to pay off your balance. 

Organizing a good financial plan that includes strong credit habits can help you plan better for today—and tomorrow. Having good credit, as a result, is well worth it.

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About the Author
Solomon Poretsky has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Poretsky holds a Bachelor of Arts in political science from Columbia University.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc., an Experian company.   © 2014 ConsumerInfo.com, Inc.  All rights reserved.

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