An IRS levy permits the legal seizure of your property to satisfy a tax debt. It can garnish wages, take money in your bank account(s) or other financial account(s), seize and sell your vehicle(s), real estate, and other personal property.
If you do not pay your taxes (or make arrangements to settle your debt), and the IRS determines that a levy is the next appropriate action, the IRS may levy any property or right to property you own or have an interest in. For instance, the IRS could levy property that is yours, but is held by someone else (such as your wages, retirement accounts, dividends, bank accounts, licenses, rental income, accounts receivables, the cash loan value of your life insurance, or commissions). Or the IRS could seize and sell property that you hold (such as your car, boat, or house).
What Does This Mean for You?
You have an outstanding balance on your account, and the IRS has issued a levy or conducted a seizure to collect your tax debt. While “levy” and “seizure” are often used interchangeably, “levy” typically refers to the IRS attaching to funds, whereas “seizure” refers to attaching to physical property.
Types of Levies
One-Time Levies: The IRS takes an asset all at once. For instance, a levy on your bank account only takes what is in the account at the time your bank receives the levy. The IRS must issue another levy to capture additional funds later.
Continuous Levies: These remain in place until the IRS releases the levy or your debt is paid in full. Federal law allows the IRS to issue continuous levies on salary, wages, and certain federal payments. Levies on wages or social security income are generally continuous.
How a Levy Affects Your Salary
When a levy attaches to your salary, it generally only takes a portion of your paycheck until the levy is released or your balance is fully paid. By law, a portion of your wages is exempt from the levy based on your filing status, additional standard deduction, and dependents. Exceptions to this exemption may occur if other income provides enough funds to meet the exempt levy amount.
To ensure the correct exemption amount is excluded from the levy, your employer will ask you to complete a Statement of Exemptions and Filing Status (Form 668-W, Part 3) and return it within three days. If you don’t return the statement within three days, your exempt amount is calculated as if you are married filing separately with no dependents. Your employer will use the information on Form 668-W and Publication 1494 to determine the exempt amount. The exempt amount will be paid to you, and the remaining amount will be sent to the IRS and applied to your tax balance.
Continuous Levies on Federal Payments
The IRS can continuously levy certain federal payments, such as Social Security benefits. Generally, the IRS can take up to 15% of your federal payments or up to 100% of payments due to a vendor for goods or services sold or leased to the federal government. For more details, refer to “What You Need to Know: The Federal Payment Levy Program.”
Additional Levy Actions
- State Tax Refunds: The IRS may levy your state tax refunds.
- Payments from Clients: Payments owed by clients for services you or your business provided or will provide can also be levied.
Seizing Real or Personal Property
The IRS can seize your real or personal property to satisfy your tax debt. They will determine a minimum amount for the sale, known as the “minimum bid,” and provide you with the minimum bid and fair market value amounts, along with a notice of sale. The IRS will advertise the sale publicly through newspapers, flyers, or the internet. After public notice, they generally wait at least 10 days before selling your property.
If there are funds left over from the sale after covering the costs associated with the seizure (including any senior liens or judgments) and your tax debt, the IRS will inform you how to get a refund of the remaining funds.