- IRS levies are placed on personal property, like bank accounts or real estate, to pay off a taxpayer’s tax debt
- You can avoid IRS bank levies by paying taxes when they’re due, filing taxes on time, or requesting a payment plan with the IRS
- Wage levies are placed on wages and salary from a job, and bank levies are placed on financial accounts held by a financial institution
Many taxpayers struggle to pay their tax bill each year. The IRS offers options to those facing financial hardship or those who can’t afford what they owe. Unfortunately, many people don’t pursue those options and don’t respond to IRS notices. The IRS may issue a levy in these cases. Getting a levy notice can be overwhelming since assets and property will be seized under a levy.
This is your guide to all the questions you may have about IRS bank levies, with answers to the most frequently asked questions.
What Is a Levy?
A levy gives the IRS the legal right to seize your property if you owe tax debts. An IRS levy allows the agency to take hold of assets like cash in your bank accounts, your vehicles, real estate you own, or wages, among other forms of personal property. IRS bank levies seize financial account assets, and IRS wage levies seize compensation paid to employees.
Is a Levy Different From a Lien?
Yes, liens are not the same as levies. The IRS uses a levy to take your property to pay your tax debt, while a lien is just a claim on that property, which the IRS makes to secure payment of your debt. You may have a lien against you if the IRS sends you a tax bill you don’t pay.
A lien is publicly filed as a Notice of Federal Tax Lien, which tells creditors the government has a right to your assets. This public document may be included in your credit report, while an IRS levy isn’t a public record and doesn’t impact your credit report.
When Would I Get an IRS Bank Levy?
The IRS won’t issue a levy right away. The agency is required to try to take these actions before issuing a levy:
- They assess your tax and send you a Notice and Demand for Payment
- They send you a levy notice (called a Final Notice of Intent to Levy and Notice of Your Right to a Hearing) at least 30 days prior to issuing the levy if you haven’t paid the tax
- You will receive this notice at your residential address, your place of business, in person, or the last known address they have for you.
- You may also receive a Notice of Levy on Your State Tax Refund, Notice of Your Right to Hearing, if the IRS issues a levy for your state tax refund, but it could come after you get the levy
- You receive an advance notice of Third Party Contact stating the agency may contact third parties about your tax liability
The IRS can decide to levy your property if you fail to pay your taxes or take action to settle what you owe and the agency has done all of the above. Contact a tax expert for help if you’re not sure what to do in your specific situation.
What Types of Property Can Be Levied?
The IRS may decide to levy your personal property or your right to property. They can levy your assets another party holds, like your wages from your job or financial accounts, or they could take hold of property like your house or car. IRS bank levies are placed on accounts within financial institutions.
What Can I Do to Avoid IRS Bank Levies?
Many people never have to deal with IRS levies because they stay current on their taxes or get help when facing a significant tax burden. You can completely avoid IRS levies on bank accounts if you pay your taxes when they’re due and file your tax returns on time.
Sometimes you may not be able to pay your full tax bill on time, but there are still ways to avoid a levy. The IRS states you should pay as much as you can right away, and then either request an extension or work with the IRS to resolve the rest of what you owe. Never ignore any kind of notice you receive from the IRS. Doing so will only make the situation worse. Here are the options you can pursue if you can’t pay what you owe on time:
Set Up a Payment Plan
A payment plan is often the best option if you can pay what you owe given a bit more time to do it. You can request a payment plan, which is an installment agreement that outlines what you’ll pay in each installment and how long the payment arrangement will last. The IRS usually can’t levy or collect when an installment agreement request is being reviewed. Additional fees may apply to your arrangement depending on your situation.
Come to a Settlement With the IRS
You may be able to work with the IRS on an offer in compromise if your tax bill causes a financial hardship or you just can’t pay what you owe. This arrangement allows you to settle for a lower amount than what you owe the IRS. The agency considers each case based on factors like your income and expenses, your ability to pay, and your asset equity. The IRS usually approves an offer in compromise if that offer is the most they estimate they’ll get from you in a reasonable time period. This option should be your last resort.
Failing to respond to IRS notices and ignoring your tax bill could lead to levies on your property. Contact the IRS to work through what you owe another way, and do it as early as possible.
What If I Receive a Levy Notice?
Always follow the instructions exactly on any notice you receive from the IRS. Receiving a Final Notice, Notice of Intent to Levy and Your Right to a Hearing means you should contact the IRS right away. The number to call should be on your notice.
Can I Request That a Levy Be Released?
You can resolve your tax debt immediately if you can pay it, and then you can request a release from the levy. The IRS must release your levy if the agency finds at least one of the following to be true:
- You paid your tax debt
- The previous collection period ended before they issued the levy
- You may be able to pay your taxes if the levy is released
- You have an installment agreement
- You have an economic hardship because of the levy
- The property seized is worth more than what you owe and the IRS can collect what’s owed without the levy
You will still need to pay what you owe or come to an agreement with the IRS even if your levy is released. The IRS may deny your release request, but you can appeal that decision. The IRS may also release a levy if it was issued by mistake.
What if an IRS Bank Levy Causes a Hardship?
Levies on your bank accounts or wages may result in an economic hardship that impacts you immediately. The IRS will assess your request for release and determine whether the levy caused such hardship. The levy must be found to prevent you from paying for your basic, reasonable costs of living. Call the IRS at the phone number on your levy notice or other correspondence and be prepared to provide your financial details. The IRS may release the levy and work with you to find another option to pay off your tax debt.
What Is a Wage Levy Versus a Bank Levy?
Some organizations may receive a levy against third parties like their customers, employees, or vendors. An IRS bank levy is issued to a bank or credit union, and that institution must turn over accounts or property owned by the customer the levy is against. They will receive Form 668-A(C)DO to levy accounts and receivables for businesses, and they have a waiting period of 21 days before they have to turn over the assets, which gives them time to make arrangements to pay or contact the IRS about mistakes.
Employers may receive wage levies against their employees via Form 668-W(ICS) or 668-W(C)DO. Levies on wages and salaries are “continuous,” meaning they are active until the IRS releases the levy. These kinds of levies can be on salary and wages, as well as retirement, pension, or other income that is considered deferred compensation. A portion of what you earn for every pay period will go to the IRS until they release the levy, you pay what you owe, or you take other steps like setting up a payment plan. The IRS usually exempts part of your wages, and you receive that portion to pay for your living expenses.
Your employer will send you a Statement of Dependents and Filing Status, which impacts the portion of your wages the IRS will receive, and you need to fill it out within three days. Otherwise, you may not have any exempt amount.
What if My Property Is Seized?
Say the IRS seizes your property, such as real estate you own, because of a levy. The agency will sell your interest and apply what they make to your tax debt. The IRS handles the bid price calculation, but you can decide to challenge their estimate based on fair market value. They will send you a notice of sale and post the listing publicly.
You will still have to pay any unpaid tax if the sale doesn’t result in enough money to cover your debt. The IRS will tell you how you can get a refund in the event the final sale amount, after costs, is greater than your tax debt.
Can I Get My Property Back After It’s Seized?
The process is generally the same to request a release of a seizure and to request a release of a levy, as outlined above. Contact the IRS right away to take care of your tax debt and request they release your property. Your other option is to show the IRS that the seizure caused an immediate economic hardship. You can appeal the agency’s denial of your release request both before and after the IRS seizes and sells your property. You have two years from the date of the levy to request a seizure release.
How Can I Redeem Real Estate After the Sale?
You have the right to redeem your real estate property that was seized and sold by the IRS for 180 days after the sale. Anyone else who has an interest in the property can redeem it as well, including your heirs or executors. Follow these steps to redeem your property:
- Pay the party who bought the property the final purchase price, plus interest of 20% per year, which is compounded daily for each day between the date the purchase was made and your redemption date.
- Request the certificate of sale from the other party as proof of your redemption.
- Contact the IRS (usually the advisor who managed the seizure process) and tell them you redeemed your property.
- Notify the officer or specialist who seized and sold your property to get the contact information of the applicable advisor. Provide your name and address, the date of redemption, the date of the transfer of the certificate of sale, the amount you paid to redeem the property, and the name and address of the person you redeemed the property from.
You may be able to send payment to an IRS director in the area where the property is located if the purchaser can’t be found. Questions about this process are bound to arise with so many moving parts, so don’t forget to contact a tax professional who can help you through it.
Contact Silver Tax Group With Questions
IRS levies are never fun to deal with. Remember, you can avoid them completely if you file and pay your taxes on time or if you reach out to the IRS as soon as possible if you can’t pay what you owe. Never ignore IRS notices and talk to a professional about what steps to take if you receive a levy notice.
If you still have questions about how the IRS levies bank accounts, real estate, or wages, contact the team at Silver Tax Group to talk to an expert.