What is an IRS Tax Levy, anyway? What will an IRS Levy do to me?
An IRS tax levy gives the government the right to collect any unpaid federal income taxes from many different sources. Unfortunately, a tax levy can legally take all the money in your bank accounts. Many people can lose up to 60% of their monthly take-home pay. Being the two most common types of IRS levy, these severe actions are discussed in detail below. Additional sources of IRS tax levy action are investment accounts, pensions, retirement accounts, IRAs, etc. Add to that any Social Security Income, cash reserves, accounts receivable and any other source of cash or equity.
When did the IRS Tax Levy process begin?
Unpaid income taxes are similar to any other unpaid debt. However, the power of IRS tax collectors is supported by one of the most sophisticated agencies in the country.
Let’s say you file a tax return that shows an unpaid balance due. When that tax return is received it is then processed by IRS and the tax is assessed. A Notice of Unpaid Taxes or a Demand for Payment form letter is soon mailed out. It goes to the last known address of the delinquent taxpayer.
Quite often this notice is ignored and no effort is made to pay the amount due.
Second notice of balance due is mailed and not answered.
Final Notice of Intent to Levy (Thirty Day Notice) is mailed to you. It warns that collection action will begin if this letter is not answered.
Effects of an IRS Tax Levy
Thirty days after the Final Notice of Intent to Levy has been mailed the IRS can begin enforced collection action against the unfortunate party. Notice of Levy forms can be mailed to all known sources of wages, cash, receivables, and other forms of income. Third party recipients of these orders will then be under special orders. These parties are obligated to send to the IRS all monies held or owed to or for the individual named on the document. Obviously, this means you.
Types of IRS Tax Levies
IRS Wage Garnishment or IRS Wage Levy
Usually the first and most common type of IRS levy action. This enforced collection order makes special demands on the recipient. Immediately the employer or payer must begin to withhold up to 60% of the employee’s gross wages or income. Employers must then continue to withhold the same amount on each pay check or payment. Such orders continue until the total amount listed on the letter has been withheld. Total amounts withheld must then be sent to the Treasury Department on at least a monthly basis. Failure to do so will result in the employer or payer being held liable for the entire amount of tax due. Therefore, most employers will obey the order. Usually your taxes will be taken from your paycheck and you will lose a substantial amount of income.
IRS Bank Levy
Painful to say the least. IRS Tax Levy letter orders your bank to immediately freeze all the money that is in your checking account. All your savings account and all of your money at that bank can disappear. Afterwards, additional levies can be sent to your bank to seize more money.
IRS Tax Levy to third parties like contractors and other sources of your self-employment income
Not only will employers and banks be levied but third parties will receive IRS tax levy orders as well. All sources of non-salary income can dry up. Subcontractor payments, commissions, self-employment income and many other methods of payment can be affected.
Social Security Income and Retirement Income Garnishment
Yes, even these guaranteed retirement payments can be garnished. SSI can be levied up to 15% of each monthly payment. Many other retirement payments are subject to IRS levy. Retired individuals dependent on these payments can be devastated by such actions.
A rarely used but quite punishing action saved for special cases. Such actions are mostly reserved for troublesome individuals. Thousands of people run and hide and don’t answer letters and fail to file all income tax returns. Automobiles and boats and even houses can be seized and sold to pay off old taxes. Most people will never undergo this method of collection as it is typically a last resort.
We hope this information has been helpful. We have many other pages and articles and each is dedicated to a single topic that is the title at the top of the page.