When a taxpayer owes back taxes, the New York State Department of Taxation and Finance (NYSDTF) has several ways to collect moneys owed. One such way is a New York State Income Execution (IE), which is a type of levy that is issued against a taxpayer’s gross wages. It is limited to 10% of gross earnings and it remains in effect until the underlying tax liability is satisfied. An IE differs from other types of levies, which is why taxpayers should be particularly concerned about getting notice of an IE. Here are 3 key facts taxpayers should know:
- A tax warrant is not required. In the past, the State could not levy taxpayer assets, including the taxpayer’s wages, without first filing a warrant for unpaid tax, interest and penalties with the County Clerk and the New York State Department of State. A warrant is a public record, acts as a judgment and generally stays in effect for twenty years. However, a few years ago, New York State changed the law stating that a tax warrant is not required prior to entering into an IE. The legislation allows warrantless income executions until April 2020. New York State has received over $101 million since inception of the new law.
- Notice is a two-step process. The two-step notice process for an IE is meant to encourage compliance and maintain confidentiality. Under the IE procedures, the first service is to the taxpayer. The taxpayer will receive a notice asking him/her to voluntarily submit up to 10% of his/her gross earnings (salary or commission) to New York State. Pursuant to the notice, the taxpayer has 20 days to respond with payment.
If the taxpayer does not voluntarily pay this 10% amount within 20 days and continue to pay this amount until the liability is satisfied, the second service is to the taxpayer’s employer. The employer can be ordered to take up to 10% out of the taxpayer’s gross wages directly from the taxpayer’s paycheck and pay it to the State on the taxpayer’s behalf. That means the taxpayer’s employer is on notice of the employee’s docketed tax warrants, which could be a source of embarrassment for the taxpayer or detrimental to career advancement.
- A pre-existing Federal wage garnishment takes precedence. If a taxpayer already has a Federal wage garnishment for up to 10% of his/her salary, the pre-existing garnishment is satisfied first, and New York State must wait. If there is a garnishment in place, the State will ask for verification from the employer of the amount of the garnishment and when it is expected to be satisfied.
Since a taxpayer’s compliance with the voluntary first service from the NYSDTF can prevent a notice being mailed to the employer, it’s crucial for taxpayers to respond promptly to avoid that result. There may be options available to a delinquent taxpayer including an Offer in Compromise or Installment Payment Agreement, which can help the taxpayer avoid an IE.
If you owe back taxes or have received a notice of income execution, contact us for a consultation.