When you owe back taxes, the IRS can use tax liens and tax levies as enforcement tools to collect what is owed. Although they are related, these actions differ significantly in how they affect your property and income.
A tax lien is a legal claim filed by the IRS against your property, such as your home, car, or bank accounts, when you neglect to pay your taxes. The lien notifies creditors and buyers that the government has a priority claim on your assets until your tax debt, including penalties and interest, is fully paid. This claim does not involve immediate seizure; however, it can negatively impact your credit score and restrict your ability to sell or refinance your assets. IRS tax liens are filed publicly with local authorities and remain until resolved or released, which may take several years depending on your payment.
A tax levy is a more severe measure where the IRS actively seizes your property or garnishes your wages to recover unpaid taxes. This can occur after a lien is established and you still fail to pay. Levies enable the IRS to directly take funds from your bank accounts (bank levies), garnish portions of your paycheck, or seize and sell personal property, including vehicles or even your home in rare cases. The IRS must send you notices before initiating a levy, but once enforced, reversing the action becomes challenging.
Historically, the IRS has used liens and levies as effective tools for tax collection. The tax lien establishes the government’s claim priority on your assets, while the levy provides a mechanism to liquidate or seize property if the debt remains unpaid.
Understanding each tool’s implications helps you respond proactively to IRS notices and negotiate payment options. For example, installment agreements can prevent liens or levies by arranging manageable payments. You can also request a lien withdrawal or release or appeal levies under certain circumstances.
Common misunderstandings include believing the IRS cannot affect your property without immediate seizure or that ignoring IRS communications will make the problem disappear. In reality, inaction invites liens and eventual levies.
For example, if you owe $10,000:
- The IRS might file a lien on your home, preventing mortgage refinancing until cleared.
- If unpaid, they could then levy your bank account to withdraw the full owed amount.
- Alternatively, they could garnish a percentage of your paycheck monthly until the debt is settled.
Anyone who owes federal taxes can be subject to liens or levies, including individuals and businesses.
For further details on related topics, see our articles on Tax Lien, Tax Levy, and Preventing a Tax Levy.
Tax Lien vs. Tax Levy Comparison
| Feature | Tax Lien | Tax Levy |
|---|---|---|
| Type | Legal claim on property | Actual seizure of property or money |
| Effect on property | Restricts sale/refinancing | Seizes ownership or funds |
| Credit impact | Damages credit score | Damages credit and reduces income |
| Trigger point | After unpaid taxes and ignored IRS notices | After lien and continued payment refusal |
| Notice required | Yes | Yes, followed by swift action |
Tips to Manage Tax Liens and Levies
- Respond promptly to IRS notices to avoid escalation.
- Set up installment agreements to pay debts over time.
- Request lien withdrawals or levy releases when eligible.
- Consult tax professionals to negotiate with the IRS effectively.
Frequently Asked Questions
Can I get credit after a tax lien?
Yes, but tax liens remain on your credit report for up to seven years, making approval for loans more difficult.
How long does a tax lien last?
A federal tax lien remains until you fully pay the debt or the IRS releases it, which can take several years.
Can the IRS levy my home?
Though rare, the IRS can levy your home after other collection methods fail.
For authoritative guidance, visit IRS.gov’s pages on Tax Liens and Tax Levies.