Quick overview
Tax liens and levies are two different collection tools. A lien is a legal claim against property that protects the government’s interest in your assets; a levy is the enforcement step that actually takes or garnishes property to pay a tax debt. Both carry financial and practical consequences, but they are handled differently and have different remedies.
Background and why this matters
The IRS and state tax authorities use liens and levies to collect unpaid federal or state taxes. The tools exist so the government can secure and eventually collect what’s due after it follows statutory notice procedures. Because liens become public records when filed and levies can drain bank accounts or wages, both can quickly escalate personal or business financial stress. For readers facing this, swift, documented action usually determines whether the situation is resolved cleanly or worsens.
Sources and official guidance: the IRS publishes plain-language pages on both topics (see “Understanding Tax Liens and Levies” and the sections on levies, notice, and appeals) which explain procedures and taxpayer rights IRS — Understanding Tax Liens and Levies and IRS — Levies. Use those pages as primary references when communicating with the IRS.
How the process works (step-by-step)
- Assessment and notice: The IRS or state agency must first assess the tax, send a notice and demand for payment, and allow statutory periods for response. If a tax remains unpaid after demand, the agency may file a Notice of Federal Tax Lien (NFTL) to protect its claim to assets.
- Tax lien: When the IRS files an NFTL (a public document recorded where real estate records are kept), it creates a public claim on many of the taxpayer’s properties. A lien does not mean the government has taken property; it means the government has priority over other creditors for the taxpayer’s assets up to the amount owed.
- Levy: A levy is the collection action—seizing property to satisfy the tax debt. Common levies include wage garnishment (employer withholding a portion of wages), bank account levies, and seizure of personal property. Before a levy, the IRS generally sends a Final Notice of Intent to Levy (for example, CP90/CP297 or LT11), which triggers a 30-day right to request a Collection Due Process hearing or other relief.
- Appeals and relief: Taxpayers can request collections hearings, enter into payment plans, submit Offers in Compromise (OIC), or obtain Currently Not Collectible (CNC) status by providing financial information (Forms 433-F, 433-A/B/C, or Form 656 for OIC). For levies, promptly requesting a Collection Due Process (CDP) hearing using Form 12153 can delay or stop enforcement while the appeal is pending. See IRS guidance: Offer in Compromise.
Real-world examples from practice
- Client A: A small business owner missed quarterly payroll tax payments. The IRS filed an NFTL, which limited the owner’s ability to refinance a loan. We negotiated an installment agreement and prioritized a lien withdrawal once payments were current; the lien was released after demonstrating compliance with the agreement.
- Client B: An individual ignored repeated notices and woke to a frozen bank account because the IRS issued a levy. By immediately filing Form 12153 and supplying up-to-date financials, we secured a temporary hold and negotiated an installment agreement that prevented further action.
These examples show two consistent lessons: respond quickly and document every contact with the IRS or state agency.
Who is affected
Any taxpayer (individual, business, or trust) with unpaid federal or state tax liabilities can face a lien or levy. People most at risk are those with unreported income, unpaid payroll taxes, missed estimated tax payments, or unresolved returns from previous years. Life changes—divorce, job loss, or a business downturn—often precipitate missed payments and thus increase vulnerability to liens and levies.
How to stop a levy or remove a lien (practical steps)
- Review the notice carefully. Identify the type of notice and the deadline (final notices typically provide a 30-day period to act).
- Call the number on the notice or contact the IRS Collections office for your region. Keep notes of dates, times, names, and reference numbers.
- Pay in full if you can. Payment immediately stops most collection actions.
- Set up an installment agreement. The IRS offers payment plans for many taxpayers; see our guide on Installment Agreements Explained: Types, Qualifications, and Costs.
- Request a Collections Due Process hearing using Form 12153. Filing a CDP request generally halts levies while the appeal is considered.
- Consider an Offer in Compromise (Form 656) if you cannot pay the full amount and meet the criteria. Learn more: What Is an Offer in Compromise and How It Works.
- Apply for Currently Not Collectible status by submitting financial disclosure (Forms 433-F or the appropriate Form 433 series) if you can’t afford payments now.
- If the levy affected a bank account or employer wage withholding, act immediately—bank holds and wage garnishments are fast and can be harder to reverse once processed.
Forms commonly used: Form 12153 (Collection Due Process or Equivalent Hearing Request), Form 433-F (Collection Information Statement), Form 656 (Offer in Compromise). Always verify form versions and submission instructions on IRS.gov.
Payment options at a glance
| Payment Option | What it does | When to use it |
|---|---|---|
| Installment Agreement | Pay in monthly installments to avoid further enforcement | If you can afford monthly payments but not a lump sum (see IRS payment plan options) |
| Offer in Compromise | Settle the debt for less than owed, approved when collection would cause economic hardship | If you can’t pay in full and your reasonable collection potential is less than the offer |
| Currently Not Collectible (CNC) | Temporarily pauses collection due to inability to pay | If your income and assets don’t allow payment now; interest and penalties usually continue |
(Descriptions above are summaries — eligibility rules and documentation requirements are significant. See IRS pages for full guidance.)
Common mistakes and misconceptions
- Ignoring notices: Silence usually accelerates enforcement. Notices contain deadlines and appeal rights.
- Believing a lien equals seizure: A lien is a claim, not an immediate seizure; however, liens can block property sales and harm credit options.
- Assuming “no one can touch” retirement or deposit accounts: Some retirement accounts are protected, but bank accounts and wages are commonly subject to levy.
- DIY without documentation: Negotiating with the IRS requires current financial statements. Incomplete or inconsistent documentation reduces your chances of favorable relief.
When to get professional help
If the IRS has issued a Notice of Intent to Levy, a Notice of Federal Tax Lien, or your bank account is already frozen, consult a tax professional, enrolled agent, CPA, or tax attorney immediately. In my experience, taxpayers who bring organized financial records and a clear, documented plan to negotiations achieve better results and move more quickly out of collections.
Frequently asked questions
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Can a tax lien be removed from my credit report? If the lien is released or withdrawn by the IRS, that action can be documented and submitted to credit bureaus. If the lien was not filed or was withdrawn, you may need to provide proof to consumer reporting agencies. The IRS explains lien filing and withdrawal procedures on its site.
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How long can the IRS collect a tax debt? Generally the IRS has a 10-year statute of limitations to collect assessed tax, but that period can be extended by actions such as filing bankruptcy, submitting an Offer in Compromise, or entering into certain agreements. Confirm specifics with IRS guidance.
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Will bankruptcy clear a tax lien or levy? Bankruptcy may discharge certain tax debts under strict criteria, but it does not automatically remove liens attached to property. Consult a bankruptcy attorney for case-specific advice.
Practical tips (do this first)
- Don’t ignore the notice: read it, note deadlines, and act within the timeframes.
- Document every IRS contact and keep copies of all forms and letters.
- Prioritize payroll and trust fund taxes: unpaid payroll taxes often trigger more aggressive collection.
- Use secure methods when transmitting financial data (IRS e-file portals or certified mail with return receipt).
Professional disclaimer
This article is educational and reflects general best practices and my professional experience helping clients with tax collection issues. It is not legal or tax advice tailored to your specific facts. For advice specific to your situation, consult a qualified tax professional, enrolled agent, CPA, or tax attorney.
Authoritative resources (official pages and useful forms)
- IRS: Understanding Tax Liens and Levies — https://www.irs.gov/businesses/small-businesses-self-employed/understanding-tax-liens-and-levies
- IRS: Collection Process, Notices, and Appeals — https://www.irs.gov/businesses/small-businesses-self-employed/collection-and-litigation
- IRS: Offer in Compromise — https://www.irs.gov/businesses/small-businesses-self-employed/offer-in-compromise
- Common forms: Form 12153 (Request for a Collection Due Process or Equivalent Hearing), Form 433-F (Collection Information Statement), Form 656 (Offer in Compromise). Always verify current forms and instructions at IRS.gov.
Further reading on FinHelp.io
- Installment Agreements Explained: Types, Qualifications, and Costs — https://finhelp.io/glossary/installment-agreements-explained-types-qualifications-and-costs/
- What Is an Offer in Compromise and How It Works — https://finhelp.io/glossary/what-is-an-offer-in-compromise-and-how-it-works/
If you’re dealing with a lien or levy now, act immediately: read the notice, gather current financials, and contact a qualified tax professional or the IRS collections office to discuss your options.
