Quick overview

Tax levies and garnishments are among the most disruptive collection actions a taxpayer can face. A levy lets a government agency — most commonly the IRS — seize assets or apply tax refunds to an outstanding tax balance. Garnishment, more often used by private creditors, is a court-ordered deduction from wages, bank accounts, or other recurring payments. Both reduce your available cash and can create immediate hardship if you’re unprepared.

This article explains how these tools work, who can use them, practical steps to stop or limit them, and when to call a professional. I’ve resolved dozens of levy and garnishment cases over 15+ years in tax and debt work; the guidance below reflects current IRS rules and federal consumer protections as of 2025.

Sources: IRS levy guidance (irs.gov/levy), Consumer Financial Protection Bureau on levies and garnishments (consumerfinance.gov), and the Treasury Offset Program overview (fiscal.treasury.gov).

How tax levies and garnishments differ

  • Tax levy: A legal seizure of assets or application of federal/state tax refunds to unpaid taxes. The IRS can levy bank accounts, investment accounts, business assets, and even file continuous wage levies.
  • Garnishment: Typically a court-ordered withholding for non-tax debts (credit cards, judgments, child support, student loans). Federal law limits many creditor garnishments; states add additional protections.

Note: Terminology varies. The IRS often calls its action a “levy” (not a “garnishment”). Consumer creditors use “garnishment” after suing and winning a judgment. Both can target wages or bank accounts, but the legal processes and protections differ.

Who can place a levy or garnish wages

  • The IRS and many state tax agencies have statutory authority to levy without a court judgment once proper notice procedures are followed. (IRS, 2025.)
  • Private creditors typically must sue, obtain a judgment, and then ask the court for a garnishment order. Consumer protections limit how much can be taken.
  • Certain federal programs can intercept payments (for example, tax refunds) via the Treasury Offset Program for unpaid federal debts or child support.

What notices and rights you should expect

Before most federal tax levies, the IRS will issue a written notice stating the amount owed and giving the taxpayer a right to appeal or request a hearing. If you receive a Notice of Intent to Levy (or similar letter), you generally have the right to request a Collection Due Process (CDP) hearing or an equivalent appeal. Acting quickly preserves those rights.

For consumer garnishments, the creditor must typically serve court paperwork and a garnishment order; most states let you file a claim of exemption if the garnishment creates hardship. The Consumer Financial Protection Bureau explains the basic limits and steps for consumer garnishments.

References: IRS levy page (https://www.irs.gov/businesses/small-businesses-self-employed/levy); CFPB identity and garnishment overview (https://www.consumerfinance.gov/ask-cfpb/what-is-a-tax-levy-en-202/).

Immediate steps to stop a levy or garnishment (action checklist)

  1. Read every notice. Identify the issuer (IRS, state, or private creditor), the amount, and the deadline.
  2. Contact the issuer immediately. For IRS matters call the number on the notice; for state levies contact the state’s revenue department. For consumer garnishments, contact the court clerk and the creditor’s attorney.
  3. If the IRS issued the notice, ask about your right to an appeal or a Collection Due Process hearing and request it in writing if eligible.
  4. Evaluate relief options: pay in full, request an installment agreement, submit an Offer in Compromise, or request Currently Not Collectible (hardship) status.
  5. For wage or bank levies, ask for a release on the grounds of financial hardship or if you can demonstrate exempt funds (retirement, certain benefits). Provide documentation promptly.
  6. If the garnishment is from a private creditor, file a claim of exemption in the court that issued the garnishment. Many states allow you to keep more income based on dependents, essential expenses, or sources like Social Security.
  7. Document all communications, save copies of notices, and keep a timeline of phone calls and contacts.

In my practice, a fast phone call to the IRS and a well-documented financial statement have stopped levies in 24–72 hours while a resolution is negotiated.

Options to negotiate or resolve tax levies

  • Pay in full: fastest way to stop a levy. If you can’t, consider:
  • Installment agreement: monthly payment plan with the IRS — the levy may be released once a direct debit agreement is in place.
  • Offer in Compromise (OIC): settle for less than the full amount if you qualify and can demonstrate inability to pay. OICs require full financial disclosure and take time to process. (IRS OIC rules.)
  • Currently Not Collectible (CNC): temporarily pause collection because of financial hardship; the levy may be released but the debt remains.
  • Administrative request for immediate release: if a levy causes imminent economic harm (e.g., cannot pay rent or payroll), request immediate action and provide proof.

Choosing the right option depends on your full financial picture. In many emergency cases I first evaluate short-term relief (CNC or installment) while pursuing a long-term solution like OIC or bankruptcy when appropriate.

Stopping bank levies and protecting exempt funds

If the IRS sends a levy to your bank, funds in the account may be frozen. You can act to protect exempt sources (Social Security, certain benefits, some retirement distributions):

  • Provide the bank and the IRS documentation showing the funds are exempt. Social Security and many federal benefits are generally protected from garnishment for most creditors; for the IRS you must show the source and timing.
  • Request a levy release from the IRS by demonstrating economic hardship or exempt status.

For step-by-step actions on bank levies, see FinHelp’s guide: How to Release a Federal Tax Levy on Your Bank Account.

What consumers often misunderstand

  • “If I ignore notices nothing will happen.” Wrong: ignoring notices typically leads to levies, tax refund offsets, and collection fees.
  • “All income can be garnished.” Incorrect: many incomes (certain benefits, portions of wages) are protected or limited by law; state rules vary.
  • “A levy is forever.” Not true: levies can be released, withdrawn, or overturned after appeal or payment.

When bankruptcy matters

Bankruptcy triggers an automatic stay that typically stops most garnishments and levies while the bankruptcy case is active. Some tax debts may be dischargeable if they meet strict IRS criteria (age of debt, type of tax, returns filed on time). Review options with a bankruptcy attorney because bankruptcy has long-term credit consequences.

See our related FinHelp article: How Bankruptcy Interacts with Tax Debt: What May Be Discharged.

Preventing levies and garnishments

  • File returns and pay on time, or at least file to avoid penalties for failure to file.
  • Respond promptly to collection notices and verify the amount owed.
  • Set up communications and formal agreements (installment agreements) before the IRS escalates.

FinHelp resource: Preventing a Tax Levy.

When to hire a professional

Hire a CPA, enrolled agent, or tax attorney if:

  • The IRS has issued a final notice to levy and you need a fast release.
  • You have complex payroll or business tax exposure.
  • You’re considering Offer in Compromise, bankruptcy, or litigation in Tax Court.

In my experience, a qualified representative can often negotiate releases or terms more quickly and limit mistakes that cost time and money.

Sample timeline (typical federal tax collection)

  1. Notice of unpaid tax and demand for payment. 2. Notice of intent to levy with right to a hearing (acts as a final notice). 3. If unresolved, levy issued to employer, bank, or third party. 4. Tax collected from seized assets or withheld wages. Timelines vary by case; acting immediately on the first notice is critical.

Useful government resources

Final practical tips

  • Don’t ignore notices. Even a short call to the IRS or creditor can stop escalation.
  • Keep careful records and ask for everything in writing.
  • If funds were seized in error, act quickly: request release, provide proof, and consider filing a claim for refund.

Professional disclaimer: This article is educational and not individualized legal or tax advice. For case-specific guidance, consult a licensed tax professional, CPA, or tax attorney.

Related FinHelp guides: “How to Release a Federal Tax Levy on Your Bank Account”, “Preventing a Tax Levy”, and “How Bankruptcy Interacts with Tax Debt: What May Be Discharged” for deeper steps and forms.