Tax News
Ask the Advocate

Steve Sims, Taxpayers' Rights Advocate.

How Your Clients May Avoid Wages and Salary Garnishments

This year we are contacting more than 900,000 people who did not file a 2010 state income tax return.

Last year, we collected more than $574 million through these efforts. Unfortunately, for some taxpayers a portion of this was collected through wage and salary garnishments because we were not contacted.

The events leading up to the garnishments often follow this scenario. We received information from an employer that they paid wages to the taxpayer. Under California Revenue and Taxation Code (R&TC) section 18501, when an individual’s income exceeds specific amounts, they must file a return even if they have no tax due or are due a refund.

When our records indicate that returns have not been filed, we contact taxpayers by mailing a Demand for Tax Return notice to the last address of record in accordance with R&TC 18416. This notice explains that within 30 days the taxpayer should either file a return, support why a return did not need to be filed, or provide a copy of the return if it was already filed.

If we do not receive a timely response, we then issue a Notice of Proposed Assessment for taxes, penalties, and interest on estimated net income as allowed under R&TC 19087. We estimate net income using 400 million income records we receive each year from third parties such as the IRS, banks, employers, state departments, and other sources.

At this point, the taxpayer has 60 days from the date of the Notice of Proposed Assessment to file a written protest with us per R&TC 19041. However, when a protest is not timely made, the amount of the proposed assessment becomes final and the tax, penalties, and interest become due and payable under R&TC Section 19042.

Now, collection action begins. We will send a Statement of Tax Due, and potentially an Income Tax Due notice, and a Final Notice. If we are not contacted during this time, we begin to use other methods of collections.

If the taxpayer is an employee who earns wages or salaries, we will likely contact their employer to establish an Earnings Withholding Orders for Taxes (EWOTs), provided by R&TC Section 19264, if we are unable to resolve the tax debt another way. EWOTs affect both employees and employers by directing the taxpayer’s employer to withhold a certain amount of wages or salary each pay period, and forward it to us to pay the liability.

Unfortunately, it is not until their wages are being garnished that you get a panic call from your client. And, while we may adjust a EWOTs payment amount if your client has a financial hardship, at this time we will not release a valid EWOT to set up an installment agreement -- unless there are exceptional circumstances.

If you have clients who receive collection notices and can’t pay, encourage them to pay what they can and then contact us 7:30 a.m. to 6 p.m., weekdays, except state holidays at:

Individuals:

  • 800.689.4776
  • 916.845.4470 (outside U.S.)

Business entities:

  • 888.635.0494

When your client can’t pay, our first choice is to find a way to work with them to resolve the collection issues sooner than later. This benefits all involved parties. The taxpayer avoids penalties and interest, the employer avoids extra work, and the state saves money otherwise spent on collection activities.

Your clients may be able to prevent collection actions if they:

Pay their tax liability in full.
Enter into an installment agreement.
File all required tax returns or provide proof that they have no filing requirement.
Make an Offer in Compromise that we accept.
Establish that a financial hardship prevents them from paying their liability.

Steve Sims, EA
Taxpayers’ Rights Advocate

Follow me on Twitter at twitter.com/FTBAdvocate.

Back to February 2012 Tax News