Owing the IRS can be a very daunting experience that causes many individuals to run and hide from IRS notices that demand payment. However, as with most things in life, you cannot hide forever and typically the time comes when you may be faced with having to deal with a levy on your paycheck or bank account. A levy is a legal seizure of your property to satisfy a tax debt. Having an IRS levy released requires your immediate and full attention to resolve the matter quickly and before a loss of needed income to pay our bills, etc results.
In most cases, you should consider acquiring the assistance of a tax professional who has experience in resolving tax collection matters. However, if your first step is to try to resolve it on your own due to having limited funds to hire a tax professional or some other financial obligations that prevents this, it is important to understand the IRS rules and what option may be available if all else fails.
When is a tax levy issued?
A tax levy is generally issued after the IRS has billed you; you have refused to respond to notices sent; and after a Final Notice of Intent to Levy and Notice to Your Right to A Hearing (levy notice) has been sent.
How much can the IRS levy on my paycheck?
Some amounts are considered to be exempt from levy (i.e. court ordered child support and amounts based on the standard deduction and personal exemptions). This leaves up to 100% of non-exempt income available to be taken by the IRS. Additionally, if you have other sources of income, the IRS could allocate these exemptions to the other income sources and take 100% of the income from a specific employer.
How much can the IRS levy on my bank account?
The IRS can take 100% of the amount in your bank account on the day the levy is received by the bank. So, for example, if the levy is received on Friday, but your paycheck is directly deposited on Monday, they can only take the amount available in your account on Friday. Furthermore, the bank is given a 21-day waiting period before the funds have to be released to the IRS, so this gives you a little time to work on getting the levy released.
If the IRS has levied a bank account you are only a signor on, click here to see what other option may be available to you.
Ways to release the tax levy includes the ability to show the levy will cause an economic hardship. A list of other ways to have a levy released are shown on the IRS website, click here. If you are unsuccessful in having the tax levy released, we suggest contacting the Taxpayers Advocate Service to get assistance.
In closing, remember that having a levy released does not mean you are out of the clear. To avoid a levy being issued again, you will need to make an attempt to settle the debt. Setting up an installment agreement or filing an offer in compromise are ways to settle a tax debt. However, tax debt negotiations are stifled when you are not in compliance and it appears that you will continue to create more tax debt due to non payment of current tax bills. Here is a list of steps you should take or be prepared to take before you try negotiating further with the IRS:
1. Make sure you are current on your tax return filings
2. Pay your recent year taxes
3. Pay estimated taxes, if required, to show you are working on being compliant going forward. However, if funds are limited, plan to pay at least current year taxes.
If you or someone you know is experiencing a tax levy or needs help resolving a tax debt, make time to discuss your situation with a tax professional who has expert knowledge in this area. Click here to book an appointment.
Some other articles you may be interested in are:
All You Need to Know About Payroll Tax
One Way to Avoid Income Tax Problems
