If you currently owe back taxes to the IRS, you might mistakenly believe that your hard-earned property and assets are safe. Unfortunately, that’s not the case; both the federal and state government have the authority to seize your things to offset your debt. One way you might encounter this is by being issued an official IRS tax levy.
We know what you’re thinking—what is a levy, anyway? And why would the government have the legal authority to seize property that’s rightfully yours?
We’ll discuss these questions and more below. Read on to learn everything you need to know about tax levies, what they are, how they happen, and how you can prevent them.
What Is a Tax Levy?
A tax levy permits the legal seizure of your property to satisfy a tax debt. Are you facing a levy? You may be wondering if you have any options on the table for avoiding the life-altering losses that could result from back taxes. The answer is that there are some things you can do to get back on track with the IRS or your state taxing authority while potentially avoiding this “last resort.”
When you receive a notice of levy from the IRS, you still have time to act before the levy goes into action. If you’re wondering, “Who do I call about a tax levy?” then you should know you can reach out to the IRS directly, a tax lawyer, or another type of tax professional to learn more about your options moving forward.
What Is an IRS Tax Levy?
An IRS tax levy is an administrative action by the Internal Revenue Service to seize property to cover an outstanding tax bill. The IRS does not need your permission to begin seizing assets, property, money, paychecks, and more.
What Is a State Tax Levy?
A tax levy is a state’s option for forcibly seizing your assets if you owe taxes. Methods and statutes vary, but your state likely has the right to seize your bank accounts and garnish your wages if you haven’t paid your taxes.
What Is a Tax Levy on Property?
A levy on a property is a legal seizure of your property to satisfy the tax debt that you owe. Delinquent taxpayers are notified of impending levy action through a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. The IRS can garnish your wages once a levy is in place. In addition, the agency can seize and sell your car(s), home(s), and other personal property.
The IRS can also enforce asset collection using a bank levy. This means the IRS will force your bank to freeze all of your accounts and funds. Money that is frozen is transferred to the IRS after 21 days if your tax debt is not resolved in full.
There is nothing you can do to stop a bank from complying with the demands of the IRS.
What Is a Tax Levy on My Paycheck?
A wage levy is typically referred to as a wage garnishment. Garnishment can create a very embarrassing and difficult situation because your employer is forced to withhold funds from your checks at the request of the IRS.
If the IRS comes at you with a wage levy, you can expect to lose anywhere between 25 to 50 percent of your earnings each pay period. Your earnings will be “held hostage” until the IRS notifies your employer that your tax debt has been paid in full.
Knowing your rights is important if you’re facing a tax levy. The IRS is actually prohibited from seizing unemployment benefits, disability payments, child support, certain types of public assistance, and certain items categorized as necessary.
The Difference Between a Tax Lien and a Tax Levy
Tax liens are a consequence of tax problems. While a levy is used to seize property, a tax lien is the legal claim against your property that ultimately gives legal authority to the government to issue the levy.
In other words, the government must first seek out a tax lien against your property. Once they’re granted the legal right to seize the property, they issue a levy. This levy means the government has the right to take your property that was under the original lien. A levy is more aggressive and serious because it means the government has already been granted the approval to take your property.
When it comes to a tax lien vs. tax levy, you may not be sure which is worse. Understand that both are severe and should be addressed as soon as possible.
What Causes a Tax Levy?
Ultimately, not paying your taxes causes a tax levy. The IRS will send you a Notice for Demand for Payment if it concludes that you owe back taxes due to neglect or refusal. The IRS will also send you a Final Notice of Intent to Levy and a Notice of Your Right to a Hearing at least 30 days before a levy kicks in. Notices are delivered by hand or via the mail. Tax levies can impact both individual returns and business returns.
How To Prevent a Tax Levy
We know what you’re thinking: What is a levy on property, and how can you prevent it from happening to you?
The best way to avoid a tax levy and other tax consequences is to remain current with all your tax returns and bills. That’s not always as simple as it sounds, though.
The IRS keeps track of the debts you owe. They’ll give you plenty of opportunities to pay them off. If you don’t respond to their attempts to contact you, they may take further action against you. A tax levy fee describes the exact amount the IRS intends to seize. In other words, your total unpaid balance in taxes will be equal to your tax levy fee.
Before the IRS can issue a levy against you, they must take certain steps—and your actions matter, too. If the IRS wants to issue a levy, you must have either refused to pay your debt or neglected to pay it. You’ll receive a letter in the mail 30 days before the levy is issued, so attending a hearing could be your path to preventing a tax levy from happening. Consider speaking with tax attorneys if you’re considering this path forward.
How To Remove an IRS Levy
IRS property seizures are less common than you might think. From mid-2018 to mid-2019, only 342 properties were seized by the IRS. This number is low because most taxpayers learn how to remove an IRS levy before their property actually gets seized.
So, how can you get rid of a levy against you? You’ll need to get in contact with the IRS and finally tackle your tax debt. If you can’t pay off the entire balance in full, you’ll likely need to enter into a payment plan with the IRS.
A payment plan isn’t the only way to stop a federal tax levy, though. You might have other options depending on your financial status.
What Is an IRS Levy Release?
A levy release means that the IRS agrees not to take money out of your paycheck or seize property to cover your tax debt. A levy release won’t just happen, though. You’ll need to request the release. Here are some of the options that can help:
- File an appeal.
- Pay your tax bill in full as soon as possible.
- Make enough consecutive payments to convince the IRS to withdraw a lien from public record.
- Request an Offer in Compromise (OIC) that will settle your owed taxes for less than the full amount.
- File for bankruptcy.
The most common route for having a levy released is to prove that the levy is causing an immediate economic hardship. However, several other factors could activate a levy release:
- You paid the amount you owe.
- The period for collection ended prior to the levy being issued.
- Releasing the levy will help you pay your taxes.
- You entered into an Installment Agreement with terms that don’t allow for the levy to continue.
- The levy creates an economic hardship that prevents you from meeting basic, reasonable living expenses.
- The value of the property is more than the amount owed.
Having a levy released does not mean that your debt has been forgiven or reduced. You are still required to pay the balance due, either through a lump payment or by making arrangements with the IRS.
While getting an IRS levy released is not easy, it’s far from being an impossible task. Getting a tax professional by your side to help you navigate your request for a release may help to boost your odds of getting the IRS to agree.
Bank Levy Release
Prevention really is the best medicine when it comes to a bank levy release. That’s because it’s extremely difficult to get money returned to you once the IRS has confiscated funds from your bank account. It’s not impossible to get the money back, but it’s preferable to take action to have a bank levy released during the 21-day period after you receive notice.
What Is a Tax Levy Fee?
A tax levy fee refers to the amount the IRS or state taxing authority intends to seize. The “fee” will total your current balance in unpaid taxes. The IRS cannot and should not take anything beyond your balance total when seizing money, wages, or assets.
It’s also possible that your bank could charge a processing fee for your levy. These fees can range from $75 to $150. Unfortunately, there is very little that can be done if a bank notifies you of a legal processing fee in the fine print of your account agreement. However, the IRS will reimburse you for bank levy fees if your levy was applied in error.
Were You Hit With a Tax Levy?
Have you recently gotten hit with a tax levy? If so, there’s a chance that you’ve known you have a tax debt problem for a long time. There’s also a great chance that you’ve been avoiding the situation. If you don’t act now, you risk of having your property seized. Once that happens, there’s very little chance that you’ll ever get it back.
The good news is that you can still change things if your property hasn’t been taken yet. You don’t have to pay off the IRS in full to achieve some results, either; if you can change your status from “won’t pay” to “will pay,” then the IRS may drop the tax levy against you altogether.
Going up against the state or federal government is no easy feat, but you don’t have to go at it alone. Consider enlisting the help of our tax professionals at Tax Group Center today to answer your tax FAQs and give you the best chance at success. Contact us today to get started on remedying your tax situation!