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The Full Guide to Understanding a Tax Levy

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    You get a certified letter in the mail from the IRS. It says that unless you pay your back taxes immediately, your property is subject to a tax levy.

    That’s enough to scare you senseless. Know that you’re not alone. Every year, the IRS has issued tax levies from bank levies to wage garnishments. 

    Read on to discover what a tax levy is, how it happens, and what you can do if you get one of those letters from the IRS.

    What Is an IRS Tax Levy?

    A tax levy is a way for states and the federal government to claim the money in back taxes owed to them. They can legally claim your property, your bank accounts, and take money out of your paycheck if you owe money in taxes.

    The IRS will send a series of notices over a period of months to collect on these debts. If these notices go ignored, then the IRS can legally seize your assets.

    The Two Types of Tax Levies

    There are two main types of tax levies that the IRS will issue. Here’s what you need to know about a bank levy and wage levies.

    Bank Levy

    A bank levy is when the IRS places a levy on your bank accounts in an attempt to claim the money owed in back taxes. You bank accounts will be frozen and you can’t access those funds. You have 21 days to respond to the IRS and attempt to resolve the back taxes.

    If there’s no resolution to the issue, the frozen funds will go to the IRS and be applied to your balance. Bank levies sometimes aren’t a one-time thing. If the issue persists, the IRS can repeatedly return to seize your accounts as more funds are deposited until the debt is satisfied.

    If banks receive a notice by the IRS to freeze your funds they must comply. To add insult to injury, banks often have a fee associated with freezing your funds.

    Wage Levies

    The other type of levy is a wage garnishment. This is when the IRS takes a piece of your paycheck in an attempt to satisfy the debt.

    Here’s the unnerving part about having your wages garnished. There’s no limit to how much the IRS can withhold from your paycheck. They will leave a certain amount exempt, but that could still leave you with little money left over to pay for basic expenses. If you’re like many Americans living paycheck to paycheck, this can have real consequences on your life.

    The other consequence of having your wages garnished is that it can leave you in an embarrassing situation with your employer. Your work is notified that the IRS will withhold your wages. Your employer has to comply with those requests.

    The IRS has specific guidelines to follow when determining your tax levy. It depends on your income, your filing status, and how many dependents you have. These guidelines are published in Publication 1494.

    If you’re paid biweekly, and file as single, the IRS can take your paycheck and leave 469.23 plus 161.54 for each dependent exempt from collection.

    A Levy Is Different From a Lien

    You may be familiar with the term tax lien. A lien differs from a levy in that a lien refers to physical assets, such as a home, your car, boat, or other types of property you own.

    If you don’t own a home or any property to speak of, the IRS will attempt to seize your bank account or place a tax levy on your wages.

    Can a Tax Levy Affect Your Credit?

    The one good thing about a tax levy is that it’s not likely to impact your credit. Levies often don’t appear in the public record.

    A lien on your home or property can become public record. If it appears in the public record, it is likely to appear on your credit report.

    That can have a negative impact on your credit for years to come.

    What to Do in Case of a Tax Levy

    The IRS has been sending you letters for months. You may not have the funds available to pay your tax bill, so you put it off.

    You’ll continue to get letters sent by the IRS. If you don’t pay or respond to the letters, you’ll get the final notice to levy your bank account. This is known as for LT-11. You have 30 days to respond or ask for a hearing if you think this is an improper seizure

    While you may feel trapped, you do have a couple of options available. The first is that you can work with the IRS to resolve the situation. You may be able to get on an installment plan to pay back the debt.

    Another option is to submit an offer in compromise. An offer in compromise is where you can offer the IRS less than what you owe in taxes. This is a complicated process and a very low percentage of offers are accepted. 

    Your best bet is to enlist the help of tax attorneys who have extensive knowledge of tax law and working with the IRS. They have established relationships with caseworkers who oversee your file. They can assist you in getting a resolution that works for you and for the IRS.

    Best of all, you can keep your assets and save yourself from a potentially embarrassing situation at work.

    Don’t Let a Tax Levy Ruin You

    A tax levy from the IRS or state can be a devastating experience. It’s scary to get that notice in the mail that there will be a levy on your bank accounts or wages.

    Fortunately, there are things that you can do in such a situation. You can work with the IRS and try to resolve the situation yourself.

    You could also get help from experts who have dealt with the IRS and can help you navigate the complex tax situation. Working with attorneys who specialize in tax law can save you time and can protect your assets.

    Contact us today to find out how we can help you prevent a tax levy.

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