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An IRS tax levy is the government's legal seizure of your property and assets as repayment for unpaid tax debt. Unlike an IRS tax lien, in which nothing is physically taken from you, an IRS tax levy grants the government a legal right to take your property and sell it in efforts to satisfy what you owe. The federal government may only issue an IRS tax levy after:
- The IRS has assessed your tax debt and sent you a Notice and Demand for Payment
- You have not fully paid your tax debt liability
- The IRS has sent you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing
If you fail to pay your tax debt completely, or to make any type of payment arrangement with the IRS, 30 days after receiving the Final Notice of Intent to Levy, and IRS tax levy may be issued. The three types of federal levies most used are bank levies, wage garnishments, and federal and state payment levies.
IRS Tax Levy on Your Bank Account
When the Internal Revenue Service decides to issue a bank levy over unpaid back taxes, your financial institution is first notified via a Notice of Intent to Levy. At that point, your bank is legally obligated to freeze all funds in your accounts: checking, savings, CDs, etc. As long as your name is on it, including joint accounts, the account will be frozen. A bank levy, fortunately, is not continuous. In other words, when your accounts are levied, only funds existing in your accounts at that time are levied; anything deposited after the levy has been issued is not affected.
Your bank will hold your funds for 21 days, giving you a three-week window to resolve your back tax debt with the IRS. On the next business day after this 21-day period, your funds are then given to the IRS. Once your bank account funds have been handed over in an IRS tax levy, that money is gone. You cannot get it back, even if you enter into an IRS payment agreement after the fact. Furthermore, if what was turned over to the government in the IRS tax levy was not enough to cover your entire tax debt, the IRS can continue with other collection actions.
IRS Tax Levy on Your Wages
While an IRS tax levy on your bank accounts is a one-time deal, an IRS tax levy on your wages is continuous. It remains in effect until your entire back tax debt is paid off. When the IRS decides to issue a wage levy, or wage garnishment, over unpaid back taxes, your employer is first notified via a Notice of Intent to Levy. Your wages will be garnished as quickly as your next paycheck, meaning a portion of your pay will be withheld and sent directly to the IRS before you even see your paycheck.
Unlike an IRS tax levy on your bank account, an IRS wage levy is immediate. The IRS Wage Garnishment Table on the official IRS website will give you a good idea of how much of your paycheck will be left after an IRS tax levy on your wages.
IRS Tax Levy on Federal Payments & State Refunds
The government may also satisfy your unpaid back taxes by issuing an IRS tax levy on your federal payments through the Federal Payment Levy Program. Through this IRS tax levy, the government can claim any federal payment due to you, including Social Security benefits and Medicare payments.
The government may also issue an IRS tax levy on your state tax refund through the State Income Tax Levy Program.
Have you received a Notice of Intent to Levy from the IRS over unpaid back taxes? Don't face the IRS alone; contact a professional!