If you’re an independent contractor or freelancer, you may have a slight fear of wage garnishment. And it’s totally okay. It’s normal to feel scared, especially when you may have an unstable income source.
But, the problem starts when some independent earners start considering they are safe from IRS wage garnishment. Well, it may not always hold true. Authorities like the IRS, debt collectors, and other creditors target your 1099 earnings to cover the debt. So, can creditors garnish 1099 wages? Yes, they can, and understanding the process and available options are the only ways to protect yourself.
In this article, we will clarify the process and common misconceptions, as well as provide steps to assist taxpayers with garnishment.
What Are 1099 Wages?
Businesses use a 1099 form to report non-employment income to the IRS. This form is typically issued to individuals (excluding corporations) who have received $600 or more in payments during the tax year.
Independent contractors, freelancers, or anyone receiving income from sources like dividends or interest must report this income through the appropriate 1099 form.
There are several versions of the 1099 form based on the type of income being reported:
- 1099-NEC: This is for reporting the non-employee compensations, like for the freelancers and independent contractors.
- 1099-DIV: This is for reporting the income earned from the shares invested in a company.
- 1099-INT: This is for reporting the income gained from the interests and the investments made.
The IRS uses these forms to cross-check information with the individual tax returns, ensuring the accuracy of reported income. If there are discrepancies between the income reported on a 1099 form and what’s included on the taxpayer’s return, the IRS may notify the taxpayer about any potential underreporting.
Can 1099 Wages Be Garnished?
No, 1099 wages, earned by freelancers and independent contractors, cannot be garnished in the traditional sense because they aren’t considered employee wages. Unlike regular employees, who have taxes automatically deducted from their paychecks, 1099 workers receive their full payment directly from clients. Since there’s no employer to withhold a portion of the pay, there’s no direct paycheck for creditors to target through traditional wage garnishment.
However, this does not mean that the 1099 workers are completely protected from the debt collection process. The IRS can still use other legal methods to recover the debt.
Know More About → IRS Penalties & Interest
How Creditors Can Garnish 1099 Wages?
Although traditional wage garnishment doesn’t apply to 1099 workers like freelancers, you may ask, “Can 1099 wages be garnished?” Yes, creditors can still pursue debts using alternative methods. Here’s how:
- Bank Account Levy: Creditors, including the IRS, can freeze your bank account and take money directly from it. This process, known as an IRS bank levy, allows them to seize funds you’ve already received from clients.
- Accounts Receivable Levy: If you’re expecting payments from clients, creditors can intercept these funds before they reach your account.
- Non-Earnings Garnishment: For self-employed individuals, creditors can use a judgment to seize income, such as commissions or contract payments. In some cases, they may take up to 100% of your self-employment income unless part of it is protected by state or federal exemptions.
- Court Approval: The IRS can often levy without court approval, but other creditors typically need to obtain a court order to impose these levies.
These methods can disrupt your finances by freezing access to your money, which can lead to financial hardship. If you find yourself facing these collection actions, it’s advisable to consult an IRS consultant.
Is Any Income Protected from Garnishment?
If you’re an employee, certain parts of your income can be shielded from garnishment. Federal law sets limits on how much creditors can take:
- Creators can take up to 25% of your paycheck after taxes and deductions or they can take the money you earn, which is more than 30 times the federal minimum wage
- For unpaid taxes like child support and alimony, the amount they take can go up to 65% of your earnings.
However, when it comes to debts like student loans or federal taxes, the exemptions are often reduced. It’s important to make sure your income qualifies for these protections. If you’re unsure, it’s a good idea to check with a local attorney to see what applies to your situation.
Also Read → IRS Debt Forgiveness Programs.
Final Thoughts!
Facing the possible challenges of wage garnishment can be tough, but some steps can be used to address and resolve the issue. Be it negotiating a payment plan with creditors, requesting the court for more manageable solutions, or even exploring options like Chapter 7 or Chapter 13 bankruptcy to pause or resolve the debt.
Paying the entire amount in full is the fastest way to stop the garnishment. But, at times, it seems far-fetched and impossible. Understanding how to remove IRS wage garnishment is key. You can stop the garnishment and restore your financial stability by paying off the debt in full or by coming to a structured agreement.
But you may wonder, can creditors garnish 1099 wages? While standard wage garnishment rules may not apply here, the creditor can still go with the alternative methods.
Each step requires careful attention, but with the right help, you can get through it and reduce the financial strain.
Professional support can make this process smoother, ensuring you take the most effective path to protect your income and secure a stable financial future.
