Colorado Tax Wage Garnishment Guide: How It Works & Relief

Dealing with Colorado tax wage garnishment can be stressful, especially if you are unfamiliar with how the process works. Wage garnishment occurs when a government agency, such as the Colorado Department of Revenue or the IRS, instructs an employer to withhold a portion of an employee’s paycheck to cover unpaid state or federal taxes. Understanding this process is crucial because it affects your income and financial stability.

In Colorado, garnishment is treated differently depending on whether it involves state or federal taxes. State law grants the Department of Revenue authority to garnish wages for unpaid income tax, while the IRS follows federal rules when collecting federal taxes. Both agencies can garnish wages until the debt is resolved, and limitations apply only in some instances. Knowing which agency you owe can help you identify the correct forms, payment options, and procedures to resolve your situation.

This guide explains Colorado tax wage garnishment, from legal authority to employer responsibilities and relief options. It also covers related topics such as disposable earnings, legally required deductions, and situations where other property or funds may be subject to collection. By the end, you will have the additional information needed to respond effectively, understand your rights, and explore possible solutions to stop or reduce garnishment.

What Is Tax Wage Garnishment?

Tax wage garnishment is a legal process where an employer withholds a portion of an employee’s wages to pay debts owed to the government. This action is typically connected to unpaid state or federal taxes in Colorado. Unlike voluntary wage assignments, where workers agree to deductions, garnishment orders come from a government agency or court and must be followed.

When a garnishment order is issued, it applies directly to your paycheck. The employer must withhold funds from your gross earnings and send them to the Colorado Department of Revenue or the IRS. The withheld money is taken from disposable earnings, which means income remaining after legally required deductions such as federal taxes, Social Security, and specific bankruptcy court orders.

Tax wage garnishment differs from ordinary garnishments covering a single debt, like credit cards or medical bills. It is a priority over other debts and can continue until the full balance is paid. Wages, bank accounts, and even other property may be subject to collection if the debt remains unresolved.

Key Points About Tax Wage Garnishment

Government agencies, not private creditors, initiate garnishment.
Employers must comply with official notices; employees cannot contract without this requirement.
Portions of paychecks are withheld regularly each pay period until the debt is resolved.
Limitations apply only in certain circumstances, such as exemptions under federal law or specific court orders.

Understanding what tax wage garnishment means and how it affects your income is the first step toward addressing the problem. Once you recognize how garnishment works, you can explore payment options, evaluate your rights under state law and the Consumer Credit Protection Act, and begin taking action to resolve the debt.

Legal Authority and Governing Agencies

Colorado's wage garnishment laws are enforced under state and federal authority. Two primary agencies handle the process: the Colorado Department of Revenue for state tax debts and the IRS for federal tax debts. Both operate under separate laws but share the ability to garnish wages until the balance is paid in full.

Colorado Department of Revenue Authority

The Colorado Department of Revenue can issue garnishment orders to employers, which require them to withhold funds from an employee’s paycheck.
The agency may file judgments or liens and sometimes seize property to secure payment of state tax debts.
If taxpayers do not respond to notices, the Department can send the account to private collection agencies for further recovery efforts.
State tax refunds may also be withheld and applied directly to outstanding balances.

IRS Authority

The IRS can garnish wages and disposable earnings after legally required deductions are made from an employee’s paycheck.
It can seize funds directly from bank accounts and take other property to satisfy unpaid federal taxes.
Federal tax refunds are automatically withheld and applied toward tax arrears until the debt is cleared.
The IRS uses Form 668-W to notify employers, who must withhold money from each pay period until the levy is released.

Governing Laws and Regulations

The Consumer Credit Protection Act limits the amount of a worker’s wages that can be withheld in ordinary garnishments. However, special rules apply when the debt involves state or federal taxes.
Colorado Revised Statutes outline the procedures and exceptions for garnishments involving state tax debts.
Federal law, including specific bankruptcy court orders and judgments, determines when exemptions apply for debts such as child support or alimony.

Together, these authorities ensure that both state and federal agencies have powerful tools to collect unpaid taxes, while also creating legal protections for employees.

Triggers for Wage Garnishment

Wage garnishment does not begin immediately after you owe taxes. Instead, agencies provide several notices, allowing taxpayers to file returns, respond to letters, or set up a payment plan before garnishment starts.

Colorado State Triggers

The Department of Revenue issues an initial tax bill when taxes are unpaid or returns are filed late.
If the bill is not resolved, a notice of deficiency is mailed, giving taxpayers 30 days to respond.
A final determination and demand for payment is then issued, warning that garnishment is possible.
A notice of intent to garnish wages is mailed, providing one last chance to settle before the levy begins.
If no payment or arrangement is made, the Department issues a garnishment order to the employer, who must begin withholding funds.

Federal IRS Triggers

The IRS first assesses the tax and mails a demand for payment to the taxpayer.
If ignored, the IRS sends a final notice of intent to levy, which includes the right to request a hearing.
If the taxpayer does not respond, the IRS issues the employer a garnishment order using Form 668-W.
The employer must begin withholding disposable earnings each pay period until the debt is satisfied or another resolution is reached.

Common Situations Leading to Garnishment

Taxpayers who fail to file returns may have a balance assessed automatically, which can trigger collection efforts.
Underreporting income during an audit may result in a balance due, leading to garnishment.
Breaking the terms of a payment plan or ignoring notices often causes accounts to move into garnishment status.
Business owners who do not remit payroll taxes can face wage garnishment and additional enforcement actions.
Consistently ignoring notices from tax agencies increases the likelihood of garnishment and other aggressive collection measures.

Knowing the events that lead to garnishment allows taxpayers to act early. By filing required forms, contacting agencies, or arranging payments, individuals may be able to stop the process before wages are withheld.

Step-by-Step Garnishment Process

Once an account is placed under garnishment, the Colorado Department of Revenue and the IRS follow established steps. Employers play a critical role because they must comply with garnishment orders.

Colorado State Process

The taxpayer receives a notice of intent to garnish, warning that their wages may be withheld.
If there is no response, the Department of Revenue sends a garnishment order directly to the employer.
The employer must withhold the required portion of the employee’s wages each pay period and send those funds to the state.
Payments are applied to the outstanding balance, including penalties and interest, until the debt is cleared.
Garnishment continues until the tax debt is paid, the taxpayer qualifies for an exemption, or an alternative payment arrangement is approved.

Federal IRS Process

The IRS sends a final notice of intent to levy and a notice of the taxpayer’s right to a hearing.
If the taxpayer does not request a hearing, the IRS issues Form 668-W to the employer.
The employer must withhold funds from each paycheck, leaving only exempt amounts determined by IRS Publication 1494.
Garnishment continues until the balance is satisfied, the levy is released, or a new arrangement, such as a payment plan, is accepted.

Employers who receive garnishment orders are legally required to comply, and employees cannot avoid garnishment by changing contracts or filing exemptions without approval. Understanding the step-by-step process allows taxpayers to prepare, respond quickly, and explore payment options before their paychecks are garnished.

Limits on Wage Garnishment Amounts

Understanding how much of your wages can be taken through garnishment is critical to managing your finances. Federal and state laws place restrictions, but exceptions apply when debts involve state or federal taxes.

Colorado State Limits

Colorado law limits typically ordinary garnishments to 20 percent of disposable earnings or the amount above 40 times the federal minimum wage.
These limits do not apply to state tax debts, meaning the Colorado Department of Revenue can garnish more than 20 percent.
In most cases, the Department sets the amount at 25 percent of disposable earnings for unpaid taxes.
Employers must calculate disposable earnings by subtracting legally required deductions such as federal taxes, Social Security, and union dues from gross earnings.

Federal IRS Limits

The IRS does not follow standard garnishment caps but uses IRS Publication 1494 to determine exempt amounts.
Exemptions depend on filing status, the number of dependents, and the length of each pay period.
The IRS may garnish more wages than ordinary creditors, leaving only enough to cover basic living expenses.
In some cases, specific bankruptcy court orders or court judgments may provide additional protections to particular taxpayers.

Disposable Earnings Explained

Disposable earnings are the amount left after legally required deductions, including taxes, Social Security, and contributions to mandatory retirement plans.
Voluntary deductions such as health insurance or retirement contributions beyond the required minimum are not subtracted when calculating garnishable wages.
This calculation ensures employees retain some of their income while meeting garnishment obligations.

Knowing how garnishment amounts are calculated helps employees estimate how much of their paycheck may be withheld and what exemptions may apply under federal or state law.

How to Stop or Reduce Garnishment

Although wage garnishment can feel overwhelming, taxpayers have several options to stop or reduce the amount withheld. The best approach depends on whether the debt involves state or federal taxes and whether the taxpayer qualifies for relief.

Colorado Options

Taxpayers can stop garnishment by paying the full amount due, usually with certified funds such as a cashier’s check or money order.
If garnishment creates financial hardship, individuals may submit Form DR6596 and supporting documents to request a hardship accommodation.
Payment plan options may be available before garnishment, allowing taxpayers to spread payments over time instead of losing wages each pay period.
If taxes remain unpaid, the Department of Revenue may also pursue other property, such as bank accounts, which makes prompt communication essential.

Federal IRS Options

Taxpayers can request an installment agreement, which allows them to make regular payments and stop or prevent garnishment.
An Offer in Compromise may reduce the total balance owed if the taxpayer can prove inability to pay in full.
Accounts may be placed in Currently Not Collectible status if garnishment would prevent the taxpayer from meeting basic living expenses.
The IRS must release a levy if it determines that garnishment creates immediate economic hardship.

Legal Protections

Taxpayers can request a hearing before the IRS Office of Appeals to dispute a levy or propose alternative collection methods.
Individuals may seek innocent spouse relief if a spouse creates a tax debt without their knowledge or agreement.
Bankruptcy may temporarily stop garnishment, but only certain tax debts can be discharged through bankruptcy court orders.

Exploring these options quickly can help reduce financial stress, prevent additional penalties, and create a manageable path to resolving tax debts.

Special Situations to Know

Some circumstances change how wage garnishment works or what portion of income can be taken. Understanding these exceptions is essential for employees, families, and self-employed individuals.

Married Couples and Joint Returns

When spouses file jointly, both are equally responsible for the entire tax debt, meaning the government can garnish wages from either spouse.
Innocent spouse provisions may apply if one partner can prove they should not be held liable for taxes caused by the other.
Colorado does not follow community property laws, but federal and state agencies can still garnish wages from both individuals in joint cases.

Self-Employed and Independent Contractors

Self-employed taxpayers are not subject to traditional wage garnishment, but their business accounts and receivables may be levied.
Tax agencies may seize business assets such as vehicles or equipment to satisfy tax debts.
Failure to pay estimated taxes often increases penalties, arrears, and the likelihood of aggressive collection actions.

Federal Employees and Military Members

Federal employees may have up to 15 percent of disposable earnings garnished for many debts, but higher amounts apply for unpaid taxes.
Military service members face special procedures under the Servicemembers Civil Relief Act, but can still have pay garnished for tax debts.
Deployment does not automatically protect military pay, but certain exemptions may apply depending on the circumstances.

Retirement Income and Social Security

The IRS can garnish Social Security benefits for unpaid federal taxes, although a portion is exempt to cover basic living expenses.
Colorado generally cannot garnish Social Security benefits for state tax debts, but exceptions exist for court-ordered child support or alimony.
Retirement accounts such as 401(k)s or pensions may also be subject to garnishment if arrears remain unresolved.

These exceptional circumstances show that wage garnishment can extend beyond regular paychecks. Taxpayers in unique situations should contact the appropriate agency or seek professional guidance to understand their rights and responsibilities.

How Long Does a Wage Garnishment Last

The length of a wage garnishment depends on the size of the debt, the type of garnishment, and whether additional penalties or interest continue to accrue. Both state and federal agencies keep garnishments in place until they are satisfied or legally released.

Colorado State Garnishment Duration

A Colorado state wage garnishment continues until the full balance, including penalties and interest, is paid in full.
The Department of Revenue may end garnishment if a taxpayer qualifies for a hardship accommodation and provides the required forms and documentation.
If taxpayers fail to resolve their accounts, the Department may pursue other property, such as bank accounts, to satisfy the debt.

Federal IRS Garnishment Duration

An IRS wage levy remains active until the balance is fully paid, the levy is released, or the 10-year statute of limitations for collections expires.
Taxpayers may shorten the duration by setting up an installment agreement, making lump-sum payments, or qualifying for an Offer in Compromise.
The IRS may extend the timeline if the taxpayer files bankruptcy, requests a hearing, or leaves the country, because these actions pause the statute of limitations.

Factors That Affect Duration

Duration may increase if interest and penalties continue to accrue on the account or additional tax years become delinquent.
Garnishment may last longer if income decreases, since smaller amounts are withheld each pay period.
Taxpayers can reduce the duration by making extra payments, applying tax refunds, or using other funds to reduce the balance more quickly.

Knowing how long garnishment may last helps taxpayers plan realistically and explore strategies for shortening the payoff period.

Consequences of Ignoring Garnishment

Ignoring wage garnishment can create serious financial and legal consequences. While garnishment alone is stressful, failing to respond often results in more decisive enforcement actions by state or federal agencies.

Immediate Financial Impact

Garnishment reduces take-home pay, making it harder for employees to cover housing, food, and other necessities.
Penalties and interest accumulate on unpaid balances, increasing the total amount owed.
Future tax refunds are automatically withheld and applied to outstanding tax debts, leaving taxpayers without expected refunds.

Long-Term Consequences

Wage garnishment may indirectly harm credit by reducing taxpayers' ability to make timely payments on other debts.
Ongoing garnishments can affect job security, especially in at-will states, where repeated garnishment orders may influence an employer’s decisions.
State or federal agencies may escalate enforcement by seizing bank accounts, placing liens on property, or pursuing other assets.

Administrative and Legal Issues

Professional or business licenses may be suspended until the taxpayer brings accounts into compliance.
Certain bankruptcy court orders may not discharge recent tax debts, leaving the garnishment in place even after filing.
Some taxpayers may face court actions if they ignore notices, especially if fraud or willful neglect is suspected.

The consequences of ignoring garnishment make it clear that taxpayers should respond quickly, explore payment options, and maintain communication with the appropriate agency.

Action Plan & Resources

Taxpayers who face wage garnishment should take immediate, informed steps to protect their income and resolve their debts. Acting quickly often leads to more manageable solutions.

Step 1: Verify the Debt

Review all notices to confirm the accuracy of the balance owed.
Access your account through the Colorado Department of Revenue’s online portal or the IRS website to confirm details.
Check which tax years are affected and calculate the amount due, including penalties and interest.

Step 2: Gather Financial Records

Collect recent pay stubs, bank account records, and proof of expenses to demonstrate your financial situation.
Prepare tax returns for any unfiled years, since agencies generally require all filings to be updated before negotiating.
Keep copies of all correspondence, forms, and mail sent or received from agencies.

Step 3: Contact the Correct Agency

Call the Colorado Department of Revenue Collections unit for state tax issues and provide account details.
Contact the IRS or the Taxpayer Advocate Service if the garnishment involves federal taxes.
Respond promptly to all mail, notices, and requests for forms to avoid more decisive enforcement actions.

Step 4: Explore Resolution Options

Consider payment plan options if you cannot pay in full, and ask about hardship accommodations when eligible.
Evaluate whether you qualify for federal programs such as an Offer in Compromise or Currently Not Collectible status.
Seek additional information from official government websites or professional advisors if your situation is complex.

Taking these steps helps taxpayers reduce the financial impact of garnishment, regain control over their income, and work toward resolving tax debts in a structured way.

Frequently Asked Questions

What is the difference between ordinary garnishments and Colorado tax wage garnishments?

Ordinary garnishments usually involve a single debt, such as credit cards or medical bills, while Colorado's tax wage garnishment applies specifically to unpaid state or federal taxes. Tax garnishment has priority over other creditors and is enforced through court orders or direct action by agencies like the IRS. Employers must comply with garnishment orders, and funds are withheld from disposable earnings until the debts are satisfied.

How do employers calculate the portion of wages to be garnished?

Employers calculate garnished wages by starting with gross earnings and subtracting legally required deductions such as federal taxes, Social Security, and certain union dues. The remaining income is called disposable earnings, and it is the amount subject to garnishment. State law and federal rules provide guidelines for these calculations, and limitations apply depending on the type of debt. IRS fact sheets and agency websites provide additional information on how to comply.

Can bankruptcy court orders stop wage garnishment for taxes?

In some cases, bankruptcy court orders may pause wage garnishment, but not all tax debts qualify for discharge. Certain bankruptcy filings create an automatic stay that temporarily halts garnishment orders, but arrears on federal taxes often remain subject to collection. Taxpayers must file the correct forms, attend hearings, and respond to court requirements to see if they qualify for relief. Seeking legal guidance can clarify exemptions and limitations that apply.

Do child support and alimony take priority over tax garnishment?

Yes, child support and alimony often take priority over Colorado tax wage garnishment. Court orders for family obligations are treated as priority debts, meaning employers must withhold funds for these payments before applying garnishment for state or federal taxes. These obligations may reduce disposable earnings, leaving less available for tax-related deductions. Employees should review judgments carefully to understand how multiple garnishment orders may affect each paycheck during the workweek.

How do I set up a payment plan to avoid wage garnishment?

A taxpayer can avoid wage garnishment by contacting the IRS or the Colorado Department of Revenue to request a payment plan. Agencies usually require taxpayers to file all missing returns, provide income details, and respond to mailed notices. Payment options may include monthly installment agreements or hardship arrangements. Once accepted, the employer will no longer be required to garnish wages each pay period, allowing employees to manage debts more flexibly.

Can agencies garnish property or accounts in addition to wages?

Yes, agencies may garnish other property or funds if wage garnishment does not cover the debt. This may include bank accounts, business receivables, or money owed under contracts. Collection agencies and government departments may also file liens against property, limiting the ability to sell or refinance. If taxpayers fail to respond, creditors can expand enforcement beyond wages, which makes early contact and resolution important to protect income and assets.