QUESTION: You said that if you owe taxes the government can deny you a passport? I never heard that one.
ANSWER: Oh yes. This has been in place for several years. The Wall Street Journal just reported that “at least 362,000” Americans will be unable to renew their passports because of back tax bills. They can take your homes, garnish your wages, and deny you the right to leave the country. Effectively, the IRS can actually starve you to death with all the rules they have and nobody on the other end will ever be there to look at the combined damage.
Judgment creditors can garnish your wages in order to collect the judgment up to a maximum of 25% of your disposable income. However, creditors of a few types of debts such as back taxes, child support, and student loans, can garnish your paycheck without a judgment. In other words, you have no right to actually contest this in a court of law. They can just garnish your wages on a whim or even on a mistake, placing the burden on you to argue with them.
The U.S. Department of Education or anyone collecting on its behalf can garnish up to 15% of your disposable income to collect on defaulted student loans. These agencies do not have to sue you first and get a judgment in order to garnish, but they must provide you with notice of the garnishment ahead of time. You can thank the Clintons for that one who eliminated the right to even go bankrupt from student loans even if a university charges you for a degree in which you cannot find employment, which today is over 60% of graduates. Universities could care less if you are getting a degree that is actually worth something. They just want the money.
Ever since 1988, child support orders include an automatic wage withholding order, even for child support that is not delinquent. The child support is withheld from your paycheck and your employer sends the money directly to the other parent. If you are required to maintain health insurance coverage for your child, the payment for that will be deducted from your paycheck as well. You can agree with the other parent to pay child support on your own, without resorting to wage withholding. The limit is up to 50% of your disposable earnings that may be garnished to pay child support if you are currently supporting a spouse or a child who isn’t the subject of the order. If you aren’t supporting a spouse or child, up to 60% of your earnings may be taken. An additional 5% may be taken if you are more than 12 weeks in arrears. Federally, child support payments and not considered taxable income. However, child support payments are also not deductible by the payer.
Taxing authorities, on the other hand, have their own limits for wage garnishment which is very subjective. The IRS bases the amount on how many dependents you have and your standard deduction amount. State taxing authorities may have their own formulas and they are all different. The IRS will send you a notice before it begins garnishing, but it does not have to get a judgment before doing so. They can take your funds BEFORE and you may not be able to afford a lawyer to help.