Will my W-2 style wages be garnished if I haven't paid taxes for last 2 years under 1099?

Question

I've worked in a "1099 - contractor / self-employed" tax status since mid-2005. I paid my taxes for 2005, but not for 2006 or 2007 (I didn't have the money - I was struggling just to keep afloat paying bills).

Now, I'm not longer "afloat" in my business - and I've been sinking fast for 2 months. I've accepted that I must get a "regular job" now, but I'm afraid that even if I DO land a job - will my wages get garnished?

I MIGHT be able to avoid bankruptcy if I land a job, but if they garnish my wages in any way I will be unable to avoid it. I can probably land a job making $40k, but I will need every penny of it just to keep credit debt payments current and keep a roof over my head (I have $60,000 in credit card debt).

So, if they're just going to garnish my wages (if I'm lucky enough to get wages in the first place - i.e. land a job) then I'll probably just move home to my parents' basement and become indigent...

Answer 1

Moving to the basement and hiding won't make the problem go away.

Moving to your parents house AND getting a job may be a good strategy.  Get a good job, reduce your monthly expenses as much as possible, and you'd be surprised at how you'll be able to make payments to the IRS and pay off your other debt.

Make yourself accountable to your parents (or a friend) so that whatever you do, you will not allow your debt to go higher.

Answer 2

IRS only start garnishing wages when you make no effort to pay them back.  Download Form 9465 Installment Agreement Request from the IRS website and if you owe over 25K to IRS also provide Form 433-F; Collection Information Statement.  UP TO the amount of $24999.00 IRS will accept a 60 month Installment Agreement (divide amount owe by 60 that will be the minimum payment IRS will accept.)

Ignoring IRS just because you owe will only cost you more.  IRS will work out a payment plan.  IF you prefer to contact them by phone call 1-800-829-0922.

Answer 3

Your wages will be subject to levy if you stick your head in the sand.  If you can pay what you owe within five years, you can automatically get an installment agreement from IRS.  

If you haven't filed your 2007 return yet get on the ball right now.  It is currently two months late but if you don't get it filed--based on time constraints, this means hand carrying it to you nearest IRS office--by Friday it will be three months late and the late filing penalty will be increased.

Answer 4

What is your status with the IRS?

Did you file your tax returns or are you waiting for the IRS to do it for you?

How much is the original tax bill?  With penalties and interest, add 33-50% to the total. (There's a nasty 22.5% penalty when you don't file at all.)

Is the amount less than $25000?  Divide by 60.  Can you afford to pay that per month?  If yes, the IRS will grant you an installment agreement and if you faithfully pay, will not garnish your wages.

If you can't afford this amount, the IRS will ask for all income/expense documents and will TELL you what you can afford to pay.  They can and will garnish your wages.

The IRS has the attitude (rightly!) that they are to be paid first.  Your credit cards were to come second.  By thinking of this as *your* money, you dug yourself a deep hole.  Claiming that if you can't live in the lifestyle you've come to expect, you'll quit working and live on the dole is not a solution.  Your parents would kick you out.

Answer 5

Doing NOTHING is the worse thing that you can do.  You need to address the two years you have not filed before the IRS does.  If you were losing money because of business this will not be a problem.  If you are in a hole because you spent all of the business income on "stuff and fun" you may have a problem.

The first thing you need to do is get the two years back taxes prepared by a tax professional so that you know what the real issues are.  You can't file bankruptcy until you have filed so that seems like a good start under any circumstances.

If you let this go about two years from now the IRS will come down on you and your W-2 wages like a ton of bricks.  In my state you could get up to a $5,000 penalty  for not filing and failing to respond to their demand letters even if you would never have owed a thing, had filed on time.