IRS Issues New Guidance for Calculating Wage Levies
IRS wage levies are sent to the tax debtor’s employer via Form 668-W, Notice of Levy on Wages, Salary, and Other Income, which contains six parts.
Before the Tax Cuts and Jobs Act (TCJA), the employer was required to give the employee the enclosed Statement of Exemptions and Filing Status, which the employee was supposed to use to claim his or her exemptions. The employer would then consult IRS Publication 1494 to determine the amount exempt from the levy, based on the number of exemptions the employee claimed on his or her Statement of Exemptions and Filing Status.
What Has Changed?
To reflect changes resulting from the tax code overhaul, the IRS has updated both the employee’s Statement and Publication 1494.
The Statement of Exemptions and Filing Status has been replaced with the Statement of Dependents and Filing Status. This occurred because the TCJA has eliminated the personal exemptions, for tax years 2018 through 2025. So now, wage levy exempt amounts are based on dependents the employee can claim on his or her tax return rather than on personal exemptions.
Along with getting rid of personal exemptions, the IRS doubled the standard deduction for the different filing groups. Consequently, the agency had to recalculate the amounts in Publication 1494 so that the increase in the standard deduction is reflected.
- IRS has now issued an updated Publication 1494, which should be used in conjunction with the employee’s Statement of Dependents and Filing Status when calculating the amount exempt from a wage levy.
What About Notice 1439?
Notice 1439 contains the new instructions for calculating wage levy exemptions.
In summary, you must give the employee parts 2, 3, 4, and 5 of Form 668-W once you receive the levy. To claim exemptions, the employee must fill out parts 3, 4, and 5 and submit parts 3 and 4 to you within three business days after you receive the levy.
The employee cannot claim himself or herself as a dependent. Also, if the employee does not provide a SSN for a dependent, do not include that dependent in your calculations when figuring the exempt amount, unless the employee writes “Less than six months old” in the space provided for the dependent’s SSN.
If the employee does not return parts 3 and 4 to you, figure the exempt amount as though he or she had claimed married filing separate with no dependents. Under no circumstances should you use the employee’s W-4 form to figure the exempt amount, as that information may differ from what’s on his or her federal tax return.
To arrive at the exempt amount, find the table in the revised Publication 1494 that matches the employee’s filing status, pay period, and number of dependents—as shown on his or her Statement of Dependents and Filing Status.
For more detailed instructions, be sure to consult Notice 1439 and more information, check out our website here!