What can I do if my wages are being garnished for an IRS tax levy?

You need to make payment arrangements with IRS before they will remove the wage garnishment. An offer in compromise or a payment agreement are several options available. There may be others. You should consult with a tax attorney.

An offer in compromise is an option. You may also be able to get the levy released depending on your circumstances.

An offer in compromise, if accepted by the IRS, allows you to pay less than the tax owed in order to get rid of the tax liability. Essentially, the IRS looks at the difference between what you make and their allowed living expenses and the amount you would get if you had to sell all your assets within less than 90 days. The IRS generally will accept an offer in compromise that equals the net value of your assets (as determined using form plus the difference between projected income and allowable expenses for the next 4 years - 5 years. For example, assume your assets are worth $10,000 more than your liabilities, you make $2,500 per month, your allowable expenses are $2,100 per month, and you owe $80,000 in taxes, interest, and penalties. An acceptable offer would be $29,200 if paid in less than four months of their accepting the offer or $34,000 if payments will take more than 4 months. As a practical matter, this means you will have to borrow from a friendly party if your income exceeds the allowable expenses. Other options are an installment agreement in which you agree to make monthly payments to the IRS until everything owed has been paid (or the statute of limitations on collections expires), bankruptcy (if the taxes were assessed more than three years ago), or getting the account placed on uncollectible status (meaning the IRS agrees the account is uncollectible for now).

The Offer in Compromise (OIC) might be an option for you, but it depends on your individual financial picture. The IRS takes into consideration your income, expenses, and assets when deciding whether or not to accept an Offer in Compromise. An experienced tax attorney can help you present your financial information in a manner most favorable to you. It takes a little while to prepare an OIC, but once it has been filed, the IRS is required to cease all levy activity. If you are fortunate enough to have your OIC accepted, your IRS tax liability (taxes, penalties, and interest) is wiped off the books.