What Is a Tax Levy? Learn How They Work and How To Remove One
No one enjoys paying taxes, but the alternative of having to deal with the Internal Revenue Service or a state tax refund department is even less enjoyable. Owing back taxes isn’t something to take lightly, and the IRS will inevitably get around to collecting them from you. Ignoring IRS tax liens and tax levies placed on your property could mean you lose it to the government.
What Is a Tax Levy?
Notice of a federal tax or state tax levy occurs when the government seizes your property to pay off taxes in the amount you owe. Here are some key takeaways to know:
It’s generally a last resort used to collect the taxes you owe or back taxes you still haven’t paid in full.
When the levy takes effect, the IRS sends representatives to seize the property in the equivalent amount that’s estimated you owe.
Levies can include tax liabilities or penalties such as wage garnishments or seized bank accounts.
The proceeds from the sale are used to pay down your debts.
An IRS tax levy is serious and is typically the final notice of intent to collect.
Usually, it’s only used after the tax has been assessed, a bill has been sent, the taxpayer didn’t pay the bill and additional notices have been sent stating the IRS’ intent to levy your property.
A federal tax lien is a claim the government makes on your property, a tax levy is when they follow through on that claim and seize and sell off the property.
Tax Levy vs. Tax Lien: What’s the Difference?
Tax Levy | Tax Lien |
|---|---|
Legally seizes your property to pay the taxes you owe | A legal claim against your property to secure payment for your tax debt |
Should not affect your credit score | Could impact your credit score |
Not a matter of public record | Public record |
Examples of Tax Levies
Tax levies come in several different forms. Here are the three types of tax levies the IRS can institute:
Wage levy: The government can garnish your wages to recover what you owe in taxes. After a wage levy is instituted, you might still receive a portion of your wages that is exempt from the levy based on the standard deduction and your personal allowance. However, any income in excess of that amount will be paid directly to the IRS.
Account levy: The government can place a levy on your accounts, such as bank accounts or retirement accounts, for unpaid taxes. After 30 days, the notice period for you to contest the levy or make other arrangements to pay the tax due will expire. The bank or other financial institution will then turn over the money in the account to the government to pay down your tax debt.
Asset levy: The government can take your assets, such as your house or car, and then sell them. The proceeds of the sale, after paying off any debts on the property and the costs of the sales process, are applied to your tax debt. If there are excess proceeds, those will be returned to you.
Preventing Tax Levies
Besides the obvious answer of paying the taxes you owe on time, another key to avoiding an IRS tax levy is to communicate with the IRS when trouble arises rather than ignoring the problem in hopes that it will go away. Generally, the IRS won’t levy your property if you have a current or pending installment agreement, offer in compromise or if the IRS agrees you can’t pay because of financial hardship.
If you can’t pay your tax bill, don’t ignore it and hope that the IRS won’t notice, seek help from tax relief companies such as:
Tax Relief Advocates
Anthem Tax Services
CommunityTax
Fortress Tax Relief
Larson Tax Relief
Precision Tax Relief
Tax Defense Network
How To Remove a Tax Levy
Aside from paying your back taxes, there are other ways you can get rid of tax levies. Here are some paths to consider if you are experiencing financial difficulties and need help removing a tax levy:
Tax relief services: By evaluating your returns, tax debt relief companies can help to minimize your tax debt. Some recommended companies include Tax Relief Advocates, CommunityTax, Fortress Tax Relief, Precision Tax Relief or Tax Defense Network.
IRS Fresh Start Program: These initiatives can include payment options such as an offer in compromise, installment agreement, penalty abatement or Currently Not Collectible status.
File an appeal: You can ask the IRS Office of Appeals for a collection due process hearing.
File for bankruptcy: Though this would mean a lot of credit and financial rebuilding, it can remove tax debt.
Final Take To GO
No one likes paying taxes, but the alternatives are even less appealing. If you find yourself struggling to pay your taxes, there are plenty of ways you can alleviate your debt or establish more palatable payment options. Make sure to research what option best suits your financial situation.
FAQ
Here are the answers to some of the most frequently asked questions regarding tax levies.
What is a tax levy?
A tax levy is the legal seizure of your property to satisfy a tax debt or pay off back taxes you owe in full. This is not to be confused with a tax lien which is a legal claim against property to secure payment of the tax debt. A levy actually takes the property to pay your tax debt.
How do I get rid of a tax levy?
Though every tax repayment is treated on a case-by-case basis by the IRS there are a few ways to get rid of a tax levy. One way is to consult a tax relief company like CommunityTax, Tax Relief Advocates or Precision Tax Relief. You could also see if you are eligible for the IRS Fresh Start Program or, in more extreme cases, file for appeal or bankruptcy.
Does the IRS notify you of a tax levy?
Yes, the tax levy will be after several notices and generally, it's only used after the tax has been assessed, a bill has been sent, you didn't pay the bill and additional notices have been sent stating the IRS' intent to levy your property.
What happens during a tax levy?
When the tax levy takes effect, the IRS sends representatives to seize the property in the equivalent amount that's estimated you owe. In addition to your property, your wage or bank accounts could also be levied. The proceeds from these would be used to pay down your debts.
Michael Keenan contributed to the reporting for this article.
This article originally appeared on GOBankingRates.com: What Is a Tax Levy? Learn How They Work and How To Remove One
