Guide

Tax Levy

Tax levies can be difficult to eliminate. And as you can probably imagine, the taxing authorities have much more power than other types of creditors.

For example, the IRS has the right to use a tax levy to seize your property without receiving a judgment against you from the courts. A bank or credit card company, on the other hand, is required to bring a case against you and meet certain other requirements to collect any outstanding payments. 

Fortunately, there are different tactics you can employ to avoid a tax levy or stop one that's already in progress.

Summary

There are several ways that a tax levy can collect funds, including automatically withdrawing the funds from your account or garnishing your wages.

Never ignore IRS billing notices. If you cannot make a full payment, you can make arrangements to pay the balance in installments.

What are Tax Levies?

The IRS and local governments use what's known as a tax levy to collect money owed. There are several ways that a tax levy can collect funds, including automatically withdrawing the funds from your account or garnishing your wages. Other common strategies include: 

  • Bank Levies:

    The IRS can contact your banking institution and require them to stop all withdrawals from your account for 21 days, and then take the money from your account.

  • Wage Garnishment:

    The IRS can have your employer withhold a portion of your wages to pay the tax debt.

  • Property Seizure:

    The IRS can take any property that you own, sell it, and use the profits to cover the amount you owe.

  • Decrease the Amount of Your Tax Refund:

    The IRS can seize any funds that are due to you via a refund. They can also intercept any refunds due to you from the state and apply the money toward your federal amount owed.

These are only some of the ways that tax authorities can collect from you. If you don't have cash to pay the debt, they will take other valuables that you own and sell them to collect the profits.


What is the process for a tax levy?

Because the IRS is a government entity, they have a lot more authority than other creditors. If you have outstanding debts, the IRS will be first in line to collect back taxes that are owed to them. In fact, any time you owe money to the government, a levy is always a possibility. However, it's usually the final measure a tax authority will make to collect an outstanding debt.

Before seizing any of your assets, creditors should offer plenty of notice regarding their attempts to collect monies owed. You should do your best to avoid entering a tax levy situation at all costs.

The IRS will send you several letters before resorting to using a tax levy, so be sure to keep your contact information up-to-date. If you receive a 'Final Notice of Intent to Levy and Notice of Your Right to a Hearing' document, a tax levy may be looming. It's best to contact the IRS right away so that you can reach an agreement regarding repayment.

In some cases, a Notice of Intent may arrive before you receive a tax bill. While you shouldn't panic, this is still something that you should take very seriously. However, if you pay the debt quickly or work out some sort of payment arrangement, you should be able to avoid any major issues. 

How to Get Out of a Tax Levy

There are things you can do to get a tax levy released. The first step is to file an appeal to keep the levy from proceeding. You can also request that creditors give back your levied assets after you have appealed the event. To start an appeal, you should ask the IRS for guidance and review this Collection Appeal Rights document. If you need additional assistance you can reach out to a qualified tax professional for more information on the best way to move forward. 


Preventing a Tax Levy

There are actions you can take to reduce the chances of having a tax levy placed on your assets. If you are unable to prove that the levy is unjustified, there are other approaches to consider:

  • Pay your Debt in Full:

    The best way to avoid problems with the IRS is to pay your tax bill in April when it's due. If you're having trouble making payments, contact the IRS to make appropriate arrangements.

  • Pay Installments Until the Debt is Paid:

    If you cannot pay your tax bill in full because you are experiencing financial hardship, you may be able to make payments over a period of time. Interest and penalties may still accrue, but making a payment arrangement lets the IRS know that you are doing your best to repay the debt.

  • Negotiate:

    You can make an offer to try and sort out your debt with the IRS. An "offer in compromise" can be used to prove that you are unable to pay the outstanding balance that you owe. If approved, the IRS will agree to let you pay back less than your full tax bill. 

  • File for Bankruptcy:

    While this isn't an ideal option, in some cases, it can be effective. You should note, however, that the process is long and there are lots of restrictions. Even if you do everything right, there is no guarantee that the debt will be forgiven.

    If you learn that the IRS has instituted a levy against your assets, it is important that you seek tax counsel immediately to negotiate a settlement. Never ignore IRS billing notices. If you cannot make a full payment, you can make arrangements to pay the balance in installments. Otherwise, you will be considered delinquent, and in extreme cases, you could face jail time. 


Frequently Asked Questions

  • How Much Do I Have to Owe the IRS to Face Jail Time?

    Generally, the IRS will pursue imprisonment only for tax evasion. Tax evasion, unlike most tax penalties, is a criminal violation in which the taxpayer takes concrete actions to evade payment of taxes at either the federal or state level.

  • Does Medical Debt Qualify Me for an IRS Payment Plan?

    Believe it or not, the IRS knows the struggles each consumer experiences when they attempt to navigate a vastly complex and costly medical system.

  • What Should I Know About Taxes Before Having a Baby?

    Having a baby is a blessing, and most people look forward to it. However, most new parents do not know how this affects their taxes. The IRS has some breaks for parents that could help you save some of your tax money as a new parent.

  • Can the IRS Take My Retirement Money?

    If you owe in back taxes, the IRS can garnish your wages, 401k, IRA, freeze your bank accounts, and seize and sell your personal property. This includes your home, your vehicle, and anything else you might own that could be of significant financial value. You may end up facing these threats for years, which is, unfortunately, something that the IRS has the legal power to do.

  • How Can a Tax Levy Derail My Plans for Early Retirement?

    If you are struggling to pay your expenses with a salary from your work, retiring will not make things any more straightforward. Generally, retirees may require about 75 per cent of their pre-retirement proceeds to enjoy a comfortable retirement.