What Is a Tax Levy?
A tax levy is a legal action by the IRS to seize your assets—such as bank accounts, wages, retirement funds, or property—to satisfy unpaid federal tax debts. Unlike a tax lien, which is a claim against your property, a levy actually takes possession or control of assets until your tax debt is paid.
Why Does the IRS Use Levies?
When tax debt remains unpaid, and you fail to respond or make payment arrangements, the IRS can initiate levy procedures to collect the owed amount. Before a levy, the IRS typically sends multiple notices demanding payment. If ignored, the IRS can move forward with seizing your property or wages.
How Does the IRS Levy Work?
The levy process generally follows these steps:
- Notice of Intent to Levy: The IRS sends you a formal notice along with a demand for payment.
- Response Period: You have at least 30 days to respond by paying, appealing, or setting up a payment agreement.
- Levy Action: If you do not respond, the IRS legally seizes your assets, garnishes wages, or places liens.
Who Can Be Affected?
Anyone owing back taxes, including individuals, self-employed workers, and small business owners, can face a tax levy. The IRS often uses levy as a last resort after other collection attempts fail.
Strategies to Prevent a Tax Levy
1. Respond Promptly to IRS Notices
Ignoring IRS letters leads directly to levy actions. Always read and respond to IRS communications promptly to explore your options.
2. Pay What You Can
Making partial payments reduces the outstanding tax balance and potential seizure amount. Any payment is better than none.
3. Establish a Payment Plan
The IRS offers installment agreements allowing you to pay your tax debt over time. Setting up such a plan can stop levy actions while you remain compliant. Learn more about IRS payment plans.
4. Request an Offer in Compromise (OIC)
If you cannot pay your full tax debt, you may request the IRS to settle for less through an Offer in Compromise. This requires financial disclosure and proof of inability to pay the full amount. Explore FinHelp’s detailed Offer in Compromise guide.
5. Use Currently Not Collectible (CNC) Status
If facing severe financial hardship, you can request the IRS place your account in CNC status, which temporarily halts collection activities like levies.
6. Appeal or Request a Collection Due Process Hearing
You have the right to challenge the IRS levy by requesting a hearing. This provides a formal opportunity to dispute the levy or negotiate other solutions.
Common Misconceptions About Tax Levies
| Myth | Fact |
|---|---|
| Ignoring IRS notices delays levies | Ignoring notices leads to levies sooner |
| Payment plans don’t always stop levies | Plans must be approved and payments kept current |
| Only wealthy people face levies | Anyone with unpaid taxes can be targeted |
Frequently Asked Questions
Can the IRS levy Social Security benefits? Generally, Social Security payments are protected from levy, but if combined with other funds in your bank account, those funds can be at risk.
How long does the IRS have to levy? The IRS has 10 years from the date your tax is assessed to collect taxes, including through levies.
Can a tax levy be removed? Yes. Paying off your tax debt, setting up a payment plan, or proving financial hardship can result in a release of the levy.
References
- IRS: Understanding Your IRS Notice or Letter
- IRS: Tax Levies
- IRS: Payment Plans and Other Options
- ConsumerFinance.gov: Handling IRS Tax Debt
To explore more about tax debt solutions, visit our articles on IRS Payment Plan Options and Offer in Compromise.
