Garnishment of 1099s and Salary

Wages are garnished for a multitude of reasons. For people in debt, this is a serious matter because creditors take settlement direct from paychecks.

When a verdict is made, salary can then be garnished or taken directly from a person’s paycheck or other sources of income. For the following reasons, wage can be garnished:

  • Child support is required.
  • Taxes are in default.
  • Unpaid court fines.
  • Student loans in arrears.
  • Credit card debt.
  • Other debts.

Rules governing garnishment vary from state to state, but federal law maintains the amount at twenty-five percent of the defendant’s current income. There’s a fixed hierarchy if income is not enough to allow for all garnishments. First, federal tax garnishments are taken, then state, and lastly, credit cards. Salary garnishment isn’t allowed in states like Texas, Pennsylvania, and South and North Carolina. Few states have a lower maximum amount they allow for garnishment.

Here’s the process that the IRS follows when garnishing wage:

  • The first thing served is a Notice and Demand for Payment.
  • A Final Notice is served at least 30 days before the garnishment will take effect. (Note: The Final Notice is not needed to be served in person, so plenty of people don’t receive it. They may not be aware of the garnishment of their wage.)
  • Unless other deals are decided for payment or dues are paid off, wage will be garnished. Garnishment of wage cannot be refused by defendants.

Companies that hire private contractors or freelancers have to file a 1099 form to the IRS to report income. Taxes are computed by the 1099 contractors themselves.

The employer has no choice but to take settlement out of the paycheck if an employee’s wages are garnished. If the employee resigns and becomes a private contractor or a 1099 freelancer, then the employer is definitely released from that obligation. The contractor’s accounts receivable can be levied by the credit, instead of garnishing wage. This means that when an independent contractor receives a check from a company for work, the bank account can be levied.

When a bank account is levied, it’s frozen, and all or some of the money in the account is taken. The IRS practices it, as well as other creditors. Creditors can levy bank accounts until the dues are paid.