If you default on your student loan, the federal government has the right to garnish your wages and even to seize your tax refund. Wage garnishments come from your net pay, after your payroll and other taxes have been deducted. When you file taxes at the end of the year, report your gross income, just as you would if no wages had been taken. There is no special place to distinguish garnished wages, as there are no credits or special tax considerations for this income.
Gather together all W-2s for any job that you worked during the year. These will show your gross income, regardless of garnishment, as well as any taxes that you paid. Include this gross income on the appropriate line of your Form 1040, 1040A or other form you are using to file your personal income taxes.
Collect documentation showing any student loan interest that you may have paid. Your loan provider should send you a form showing what you paid for the year. If you don't, you can request the information be sent to you. Include this information on line 33 of Form 1040, if you're using that form to file your personal income taxes.
If you paid educational expenses in that tax year, file a form 8863 for either the American Opportunity Credit or the Lifetime Learning Credit. Payments toward student loans, even those that are being garnished from your wages, don't count for these credits. The payment must be made for qualified education charges, such as tuition, for that tax year. If you qualify for either of these credits, they can offset your tax burden.
Items you will need
- Documentation showing student loan interest paid
- Personal income tax forms
- Form 8863
- Your tax form has no fields to list garnished wages on your tax form. These wages are included in your gross income, which will be reported as usual on your personal income taxes.
- To reduce your tax burden, consulting a certified public accountant may help you get all your allowable credits and deductions.
- To satisfy your debt, the IRS may also seize any tax refund that you are due in addition to garnishing your wages.
- Internal Revenue Service: Form 8863
- Internal Revenue Service: American Opportunity Credit
- Internal Revenue Service: Lifetime Learning Credit
- Internal Revenue Service: Topic 456 - Student Loan Interest Deduction
- Internal Revenue Service: 1040 Instructions
- U.S. Department of Labor: Fact Sheet #30: The Federal Wage Garnishment Law, Consumer Credit Protection Act's Title 3 (CCPA)
- Employment Development Department State of California: Frequently Asked Questions and Answers About Earnings Withholding Order From Taxes (EWOT) Law
- American Student Assistance: Tax Refund Garnishment
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