How tax liens and levies work, and what to do if you receive a notice

The IRS uses two separate collection tools and they carry different consequences. A federal tax lien attaches to your property when taxes are assessed and unpaid; it protects the government’s interest in your assets. A levy is the enforcement step the IRS can take to actually take and sell your property or garnish income to satisfy the debt. Both are serious, but they require different responses.

How a lien is created and what it means

  • A federal tax lien arises by operation of law after the IRS assesses the tax, sends a bill (a Notice and Demand for Payment), and the taxpayer fails to pay. The IRS often files a Notice of Federal Tax Lien (NFTL) in public records to alert third parties, though the lien exists even before filing. (IRS: “Understanding Tax Liens”)
  • Effect: a lien can block or complicate property sales, limit access to home equity, and make lenders wary. It may also affect credit indirectly when it shows up on public records. For practical steps and title impacts, see our guide on understanding tax liens and title issues.

Internal resources:

How a levy works and what it can take

  • Before levying, the IRS generally must send a Final Notice of Intent to Levy and provide at least 30 days to request a Collection Due Process hearing or otherwise resolve the debt. If unresolved, the IRS can levy — that means seizing bank accounts, garnishing wages, taking retirement distributions, or even seizing and selling real property. (IRS: “Tax Levies”)
  • Effect: a levy immediately reduces access to the seized asset (for example, frozen bank funds). Some levies — like wage garnishments — are ongoing until the debt is resolved.

Key differences at a glance

  • Purpose: lien = legal claim; levy = seizure and sale.
  • Timing: a lien can be automatic upon assessment; a levy requires additional notice and a waiting period.
  • Visibility: liens are recorded publicly; levies are often noticed directly to third parties (banks, employers).

Common collection options that stop or limit liens and levies

  • Pay in full: satisfies the debt; the IRS will release the lien (or return levied funds) once processing completes.
  • Installment Agreement: may prevent seizure if in place and current. Some installment agreements require a lien as collateral.
  • Offer in Compromise (OIC): an accepted OIC can lead to lien release or subordination depending on terms.
  • Currently Not Collectible (CNC): puts collection on hold but does not remove the lien automatically.

Authoritative IRS pages cover these options; start with IRS guidance on liens and levies (https://www.irs.gov/businesses/small-businesses-self-employed/understanding-tax-liens and https://www.irs.gov/businesses/small-businesses-self-employed/tax-levies).

Practical steps to take right away

  1. Read any IRS notices carefully; notices include deadlines and required actions. Do not ignore the Final Notice of Intent to Levy. (IRS)
  2. Contact the IRS immediately to discuss payment plans or request a Collection Due Process hearing if a levy notice arrives.
  3. Consider temporary protections: bankruptcy filings, currently not collectible status, or asking for a levy release if hardship can be demonstrated.
  4. Get help from a qualified tax professional (CPA, EA, or tax attorney) — these cases often benefit from an experienced negotiator.

In my practice I’ve found that prompt contact and setting a realistic payment plan frequently prevents levies. When a lien is already filed, negotiating lien subordination or a certificate of release at the closing stage can make a property sale possible.

Common misconceptions

  • “A lien is only a paper issue and won’t affect me.” Wrong: liens can block closings, raise borrowing costs, and show up in title searches.
  • “A levy can’t touch my paycheck.” Wages are one of the common levy targets; the IRS can garnish pay after required notices.

When to escalate

  • If the IRS levies your bank account or wages and you believe the levy is wrongful, request a Collection Due Process hearing or submit Form 12257 to request a levy release (see IRS instructions). If funds are wrongly taken, demand a prompt refund and pursue an administrative or tax-court remedy.

Professional disclaimer: This article is educational only and does not constitute legal, tax, or financial advice. Contact a qualified tax professional or attorney for guidance tailored to your circumstances.

Sources and further reading