Understanding IRS Tax Levies and Garnishments

Often times, taxpayers fall behind on their taxes owed to the IRS. Once this debt reaches a certain point, the Internal Revenue Service may file a tax levy against you.

A levy or garnishment is a collection measure used by the IRS to collect on back taxes owed. Though these collection methods, your bank account may be frozen, your assets may be seized, and the IRS may garnish your wages to get the outstanding taxes due. It can be an extremely overwhelming situation- but there are solutions available.

What Is A Levy?

An IRS levy occurs when your property, assets, or bank accounts are seized to pay a tax debt to the IRS. If you have an unpaid debt and do not contact the IRS to set up some sort of an agreement or pay off the debt within the allotted time frame, the IRS has the power to seize and sell your real estate, investments, home, vehicle- any asset that can be sold to satisfy your debt. The IRS can also place a levy against your bank account. The levy provides the IRS with the right to take all the money currently in the account and any money that may come into the account for the next 21 days. The money levied from your bank will be put toward your tax debt, but your tax account will still be accruing interest and penalties until it is paid off. It is also important to note that the IRS will have to issue multiple levies in order to take from your account multiple times (which they will, depending on the size of your debt).

On the other hand, an IRS wage garnishment does not need to be reissued- it only needs to be issued once and will continue to take your wages on each pay period. A garnishment can reach all forms of compensation you receive, including wages, bonuses, and other forms of employee compensation. It isn’t limited to W2 wages either- the IRS can garnish pensions, independent contractors, social security disability benefits, and VA benefits.

When Is A Tax Levy Filed?

Before a levy or garnishment occurs, you will receive a letter from the IRS which is an “IRS Notice of Intent to Levy.” This letter will allow you 30 days to respond or the IRS will issue the levy or garnishment to seize your assets or wages. If the IRS does not receive a response or payment, then you will receive an “IRS Final Notice of Intent to Levy.” Upon receiving this notice, there is generally a short deadline until they begin garnishing your wages or issuing a levy on your bank accounts. There are several other notices you should familiarize yourself with before a levy or garnishment occurs:

CP 14 – Notice of balance due
CP 501 – Bill for tax still owed
CP503 – Immediate Action Required
CP 504 – Urgent Notice – Intend to Levy
CP90/CP297 – Final Notice of Intent to Levy & Notice of Your Right to a Hearing

As for garnishment, once they are issued, your employer is generally required to remit the levied funds directly to the IRS on the first pay cycle after the notice is served.

Types Of Tax Levies

There are several different types of collection methods that the IRS will employ in order to obtain the past-due debt. These are the most common methods used by the IRS:

Bank Account Levy
With a bank levy, the IRS can freeze any bank account under your name and collect past due taxes from the account. The IRS will have a legal claim to the money in the bank account(s) in order to pay off the debt. All banks are legally required to comply with these levies issued by the IRS. Each levy lasts approximately 21 days and all funds that come into the account(s) during that time can be seized.

Property Seizure
With a property seizure, your personal property and real estate are potentially subject be seized by the IRS. Examples of this property include- real estate, vehicles, boats, motor-homes, etc. The IRS has the authority to execute the levy and seize even your personal home or your business.

Wage Garnishment
Wage garnishment occurs when your salary or earnings are intentionally withheld by his employer. The employer then remits the withheld amount to the IRS to pay off a back tax debt. Wage garnishments, unlike levies- which must be reissued, are continuous. Garnishments remain in effect until the underlying tax debt has been paid. The IRS can issue wage garnishments on salaries, wages, bonuses, commissions, and even retirement benefits or pension earnings.

Social Security Garnishment
While this is a less common method of collecting on a past-due debt, the IRS still has the ability to garnish social security funds. The IRS can garnish up to 15% of Social Security through the Automated Federal Payment Levy Program (FPLP). If the garnishment is manual, rather than automatic, there is no limit on what can be garnished. It is important to note that your tax debt will not affect your eligibility for Social Security Benefits. You may still collect the benefits, but the IRS will take a portion of your benefits as a deduction from your benefit check.

How To Stop IRS Tax Levy and IRS Wage Garnishment

CuraDebt Tax employs a 3-phase approach to establish the best methods to solve your tax issue in the most favorable manner based on the unique situation you are currently facing

Phase One – Investigation
Our tax professional, when appropriate and needed, will request an immediate stay of enforcement with the IRS or State. After, you will undergo a rigorous financial analysis to identify your current and projected financials under IRS (and/or State standards), the master tax file will be pulled, tax transcripts will be obtained, then our tax professional will review them, penalty abatements qualifications are to be checked, statute of limitations on collection of tax debts will be evaluated, the possible resolutions (IA, CNC, PPIA, OIC, other) with pros and cons of each will be detailed, and lastly, the final recommended resolution will be provided to you.

Phase Two – Compliance
If needed, compliance is done by making sure missing tax returns are filed (or ones with mistakes are corrected). It is important to maintain compliant with IRS rules and regulations and ensure that future returns are in good standing. In some cases, by filing missing returns or fixing ones with mistakes, the taxpayer receives a refund from having overpaid in taxes.

Phase Three – Resolution
The recommended solution from the investigation is put into place to resolve your tax issue.

We Can Help

We understand the importance of catering to one’s unique financial situation to find the best possible solution. A levy on your assets or a garnishment on your wages is an understandably stressful experience- but there are options available, speak with one of our representatives today for an analysis on your financial situation. Some of the possible ways we can

You have rights as a taxpayer, and our experienced tax professionals will work with the IRS to find alternatives to these debilitating collection methods of a levy or garnishment. Reach out to CuraDebt—a reputable debt and tax relief company in the business for over 15 years. We can help you manage your levy or garnishment with the IRS.