What Happens After the IRS Issues a Levy Against Your Property?

What Is a Levy?

An IRS levy is a legal collection action that allows the Internal Revenue Service (IRS) to seize property or rights to property to satisfy an outstanding federal tax liability. When a taxpayer fails to pay their tax debt or make arrangements to resolve it, the IRS may use a levy to collect what is owed.

It’s important to understand the difference between an IRS tax lien and an IRS tax levy. Although the terms are often used interchangeably, they serve different purposes.

• Tax lien: A legal claim against your property that protects the government’s interest in your assets when you owe unpaid taxes.
• Tax levy: An enforcement action that allows the IRS to take property or money to collect the outstanding balance.

When Can The IRS Issue a Levy?

In most cases, the IRS must complete several steps before legally levying your property:

1. Assess the tax liability and send you a Notice and Demand for Payment.
2. Allow you an opportunity to pay the outstanding balance.
3. Send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days before the levy, subject to certain exceptions.
4. Provide the required notice concerning your right to a Collection Due Process (CDP) hearing.

If you don’t respond or take appropriate action, the IRS may proceed with collection once the applicable legal requirements have been met.

Importante: A final levy notice does not necessarily mean your property has already been seized. It generally means the IRS is preparing to take enforcement action if the matter isn’t resolved.

Types of IRS Levies & Consequences

The IRS has several methods for collecting unpaid taxes through a levy. What happens after the levy is issued depends largely on the type of property involved.

1. Bank Account Levy

A bank levy allows the IRS to seize available funds from your checking, savings, or other eligible financial accounts.

What happens next?

When the IRS serves a levy on your bank, the bank generally must freeze funds available at the time the levy is received, up to the amount specified. In most cases, the bank holds those funds for 21 days before sending them to the IRS.

This waiting period may provide an opportunity to contact the IRS and request a levy release before the money is transferred.

Potential consequences:

• Temporary loss of access to frozen funds.
• Difficulty paying rent, utilities, or other essential expenses.
• Returned payments or overdraft fees if insufficient funds remain available.
• Permanent loss of levied funds once transferred and applied to your tax liability, unless a return of funds is authorized.

A standard bank levy is generally a one-time action against funds available when the levy is received. However, the IRS may issue additional levies if the tax debt remains unpaid.

2. Wage Levy (Wage Garnishment)

If the IRS levies your wages, your employer must generally withhold a portion of your earnings and send it directly to the IRS.

Unlike a bank levy, a wage levy is typically continuous, meaning it remains in effect until the tax liability is satisfied, the levy is released, or another legally applicable event ends it.

What happens next?

Your employer receives instructions from the IRS regarding how much of your pay must be withheld. You will generally be asked to provide information about your filing status and dependents so the exempt amount can be calculated.

Potential consequences:

• Reduced take-home pay.
• Difficulty keeping up with regular living expenses.
• Ongoing deductions from future paychecks.
• Financial hardship if the remaining income is insufficient to cover necessary expenses.

The IRS must leave an exempt portion of your wages, but the amount varies based on applicable rules and your circumstances.

3. Property Seizure

In some cases, the IRS may seize physical assets to recover unpaid taxes. This can include vehicles, real estate, business equipment, and other property that is not legally exempt from levy.

What happens next?

If the IRS seizes physical property, it may arrange to sell the assets and apply the proceeds toward your outstanding tax liability.

Before selling seized property, the IRS generally must provide notice of the sale and comply with applicable legal procedures.

Potential consequences:

• Loss of vehicle, real estate, or other valuable property.
• Disruption to your personal finances or business operations.
• Additional seizure and sale expenses.
• Continued tax liability if the proceeds do not fully satisfy the balance.

Certain assets are protected from levy, and special restrictions apply to the seizure of a taxpayer’s principal residence. The IRS generally must obtain federal district court approval before seizing a principal residence, subject to limited exceptions.

4. Levy on Other Income or Payments

The IRS may also levy certain payments owed to you by third parties, including:

• Retirement income and certain retirement account assets.
• Social Security benefits, subject to applicable exemptions and restrictions.
• Payments from customers or clients.
• Rental income.
• Certain federal payments.

For example, the IRS may collect a portion of eligible federal payments through the Federal Payment Levy Program. Certain Social Security benefits may be subject to a continuous levy of up to 15%, although other protections and exceptions may apply.

Potential consequences:

These levies can reduce income you depend on for living expenses, retirement, or operating a business. The precise amount and duration depend on the type of payment and the collection authority used.

What Happens to Your Tax Debt After a Levy?

A levy does not automatically eliminate your tax debt. The money collected is generally applied toward your outstanding liability, but penalties and interest may continue to accrue on any unpaid balance.

If the levy doesn’t satisfy the full amount owed, the IRS may pursue additional collection actions unless the remaining liability is resolved or collection is otherwise restricted.

Can I Stop an IRS Levy?

Yes. Depending on your circumstances, you may be able to prevent a levy, request its release, or challenge the IRS’s collection action. However, your available options often depend on whether the IRS has only issued a warning, has already served the levy, or has collected the funds.

1. Pay the Outstanding Tax Balance

Paying the tax liability in full is generally the most direct way to stop collection activity. Once the balance covered by the levy is satisfied, the IRS must release the levy.

If you cannot afford to pay the entire amount, other options may be available.

2. Request an IRS Installment Agreement

An installment agreement allows eligible taxpayers to pay their tax debt over time through monthly payments.

If you qualify for an acuerdo de pago a plazos, the IRS may release an existing levy as part of resolving the collection matter. In many circumstances, an approved installment agreement also prevents new levies while the agreement remains in effect.

However, entering into a payment plan does not automatically guarantee the release of every existing levy.

3. Demonstrate Financial Hardship

If a levy prevents you from paying necessary living expenses, you may qualify for a hardship-based levy release.

The IRS may request financial information documenting your income, assets, and allowable expenses to determine whether the levy is creating an immediate economic hardship.

In some cases, the IRS may also place your account in Actualmente No Recaudable. (CNC) status if you cannot afford to make payments toward your tax debt.

CNC status generally suspends active collection efforts while the hardship continues, but it does not erase the balance. Penalties and interest may continue to accrue.

4. Request a Collection Due Process Hearing

If you receive a qualifying Final Notice of Intent to Levy, you generally have 30 days from the date of the notice to request a timely Collection Due Process hearing.

A timely CDP request generally prevents the IRS from proceeding with the proposed levy while the hearing and any applicable judicial review are pending, subject to exceptions.

During the hearing, you may be able to:

• Challenge whether the IRS followed proper collection procedures.
• Propose an installment agreement or other collection alternative.
• Raise appropriate financial hardship concerns.
• Dispute the underlying tax liability in certain limited circumstances.

If you miss the CDP deadline, you may still qualify for an equivalent hearing, but it does not provide all the same legal protections.

5. Explore an Offer in Compromise

Un Oferta en Compromiso (OIC) allows qualifying taxpayers to settle their federal tax liability for less than the full amount owed.

Eligibility depends on factors such as your ability to pay, income, expenses, and asset equity.

The IRS generally cannot make a new levy while a qualifying offer is pending, during certain periods following rejection, or while a timely appeal of the rejection is pending. However, an OIC does not automatically release property already levied.

6. Request a Levy Release or Appeal

You may be able to request a levy release if:

• The tax debt has been fully paid or is no longer legally collectible.
• The levy was issued improperly.
• Releasing the levy would help facilitate collection of the tax debt.
• The levy creates an immediate economic hardship.
• You enter into an installment agreement whose terms require release.

If you disagree with the IRS’s decision, you may also have appeal rights through the Collection Appeals Program (CAP) or other applicable procedures.

Tener en mente: Releasing a levy does not necessarily eliminate the underlying tax debt. You may still need to establish a plan for resolving the remaining balance.

Next Steps: What to Do If the IRS Levies Your Property

If the IRS has already issued a levy, taking prompt action can help limit the financial consequences and may improve your chances of obtaining relief.

1. Review Your IRS Notice

Identify the type of levy, the amount owed, the tax periods involved, and any deadlines listed. Determine whether the notice warns of a future levy or confirms that a levy has already been served.

2. Contact the IRS Promptly

If your bank account or wages have been levied, contact the IRS using the information on your notice. Explain your circumstances and ask whether a release or collection alternative is available.

3. Gather Your Financial Information

Prepare documentation of your income, expenses, assets, and financial obligations. This information may be necessary when requesting hardship relief, an installment agreement, or another collection alternative.

4. Explore Your Tax Resolution Options

Depending on your financial circumstances, you may qualify for an installment agreement, Currently Not Collectible status, an Offer in Compromise, or another form of IRS relief.

5. Consider Professional Tax Assistance

Dealing with an IRS levy can be complicated, particularly when your wages, bank accounts, or property are already affected. A qualified tax professional can help you understand your rights, communicate with the IRS, and evaluate available resolution options.

Don’t Wait to Address an IRS Levy

An IRS levy can have serious financial consequences, but it doesn’t necessarily mean you’ve lost every opportunity to protect your income or property. Whether you’re facing wage garnishment, frozen bank funds, or the potential seizure of valuable assets, understanding your rights and responding quickly can make a meaningful difference.

En Tax Defense Network, our team helps taxpayers navigate IRS collection issues and explore potential solutions for unpaid tax debt. If you’re facing an IRS levy or have received a notice warning of collection action, contact Tax Defense Network today to discuss your situation and learn what options may be available to you.