IRS Wage Garnishment and Employment

Wage garnishment – if you haven’t heard of it before, you may picture crisp dollar bills surrounded by lettuce and tomatoes on a platter, or perhaps a paycheck "garnished" with a few extra zeroes. Unfortunately, wage garnishment is not typically a pleasant matter. It can occur in a variety of situations, including nonpayment of taxes. When the IRS garnishes a person’s wages, it can also impact his or her employment and, in certain cases, may raise concern in an employer’s mind.

What is Wage Garnishment?

When a person has fallen into certain types of debt, the law allows those who are owed the debt, i.e. the creditors, to obtain a court order requiring the employer of the debtor to withhold payments from his/her wages. The garnished wages are then paid directly to the creditor and are applied to the debt. IRS garnishment arises when it is determined, through the proper channels, that a taxpayer owes past due taxes. As a side note, another common area for garnishment to arise is with child support payments.

Can Garnishment Lead to Job Termination?

In my practice, I have encountered situations where employees had workers whose wages were being garnished by the Internal Revenue Service (IRS). In one instance, an employer asked whether the employee could be terminated because of the garnishment. Often, employees also wonder if the garnishment could jeopardize their employment. Many are surprised to learn that as long as the IRS garnishment is the only garnishment against an employee’s wages, it would be illegal to terminate the employee for this reason.

The Law: Title III

With regard to the question at hand, IRS garnishments are surprisingly governed neither by the Internal Revenue Code nor the IRS. Instead, it is covered by Title III of the Consumer Credit Protection Act (Title III) and the United States Department of Labor’s Wage and Hour Division. More specifically, Title III states that “[no] employer may discharge any employee by reason of the fact that his earnings have been subjected to garnishment for any one indebtedness." Other related laws make it clear that Title III applies to the IRS’s tax collection process. Title III imposes a fine of no more than $1,000 or no more than one year of imprisonment on employer’s who willfully violate the requirements of Title III.

The rationale behind Title III is to promote commerce, or more specifically to support the process of collections. The theory is that if employers are allowed to terminate employees because of a garnishment, then the terminated employee won’t be able to pay off their debt. This would frustrate the whole purpose behind wage garnishment and serve as a hindrance to commerce in general. In addition, at the time Title III was enacted, there was great disparity among the laws of different states relating to garnishment, so Title III serves to quiet the waters.

When Garnishment Can Lead to Termination

Some courts have ruled that an employer can discharge an employee with more than one past or present garnishment on their wages. Thus, employees who have previously had their wages garnished, or who currently have more than one garnishment from any legitimate source, should not rely on Title III for job security.

For more information on IRS wage garnishment, please visit the Division of Labor’s website.

Matthew Grosh is an attorney at Russell, Krafft & Gruber, LLP in Lancaster, Pennsylvania. He received his law degree from Villanova University and practices in a variety of areas including Employment Law & Discrimination and Human Resources & Employment Law.