08.20.2018

IRS Issues New Guidance for Calculating Wage Levies

Blog, Individual Taxes, Payroll

For those having their wages levied by the IRS, the levies are sent to the tax debtor’s employer via Form 668-W, Notice of Levy on Wages, Salary, and Other Income. This form contains six parts.

Prior to the Tax Cuts and Jobs Act (TCJA), the employer was required to give the employee the Statement of Exemptions and Filing Status, which the employee was to use to claim their exemptions. Then, the employer would 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 coming from the new tax act, the IRS updated both the employee’s statement and Publication 1494.

Now, instead of the Statement of Exemptions and Filing Status, the employee receives the Statement of Dependents and Filing Status. This change occurred because the TCJA has removed personal exemptions for tax years 2018 through 2025. Wage levy exempt amounts are now based on dependents the employee can claim on his or her tax return rather than on personal exemptions.

Along with the discontinuation 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. The IRS has 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 is Notice 1439 about?

Notice 1439 contains the new instructions for calculating wage levy exemptions.

In general, you must give the employee parts 2, 3, 4, and 5 of Form 668-W once you, the employer receives the levy. The employee must fill out parts 3, 4, and 5 and submit parts 3 and 4 to you, the employer, within three business days after receipt of the levy to claim exemptions.

The employee cannot claim himself or herself as a dependent. Also, if the employee does not provide a social security number for a dependent, the employer should not include that dependent in the calculations when determining the exempt amount, unless the employee writes “less than six months old” in the space provided for the dependent’s social security number.

If the employee does not return parts 3 and 4 to you, the employer should calculate the exempt amount as though he or she had claimed married filing separate with no dependents. Under no circumstances should the employer use the employee’s W-4 Form to calculate the exempt amount, because that information may differ from what’s on the employee’s 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, or contact our firm for more information and guidance.

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