Why Is There a Tax Levy on My Paycheck?
If you have unpaid federal taxes and you haven’t responded in a timely manner after receiving several notices, it is possible a levy will be issued on your paycheck by the IRS. If this applies to you, you should consult with a qualified federal tax attorney who can verify the levy and assist you in releasing it.
What Is a Tax Levy?
A tax levy can be a powerful collection tool used to seize a portion of your regular income or other assets. Under the Internal Revenue Code (IRC), the IRS can levy against any property or the right to property that belongs to a taxpayer with unpaid tax debt. If you have failed to take action after multiple notices from the IRS regarding your filing or tax debt due, the IRS may levy your assets, including your wages. It also permits collection on assets on which there is already a tax lien, unless the IRC expressly exempts the property from levy.
Is a Levy the Same as a Tax Lien?
A levy is distinctly different from a tax lien, although they are related. If you neglect to resolve your IRS tax debt, the IRS may file a tax lien. A tax lien is a legal claim to your property, which includes real estate and other assets. The IRS will proceed to file a Notice of Tax Lien alerting a taxpayer of their lawful right to seize property. The lien is additionally reported on a taxpayer’s credit report which can harm a taxpayer’s ability to borrow or obtain financing.
If you have received a Notice of Tax Lien to be filed in the county you live in, it is still possible to resolve your tax debt before it is filed against your assets. An IRS lien can be removed, and your credit score can be fixed. This can be done if the tax debt is paid in full, the tax debt is settled with the help of a tax lawyer or when other tax resolution options are negotiated.
Bank Levies Versus Wage Levies
If you fail to pay your taxes or cannot do a collection alternative, the IRS will move forward with levying your assets. Your “assets” refer to any property in your possession or properties that you have an interest in or have a right to.
Properties such as your house, car, or boat are subject to seizure and subsequent selling by the IRS in order to settle your debts. Property that is essentially yours but held by another party is also able to be levied. This means tax levies on your bank accounts, as well as wage levies, or garnishments, are also at the IRS’s disposal.
When the IRS seizes your bank accounts, including retirement accounts or other financial accounts, this is known as a bank levy. This can cause you dire financial distress as they can empty your accounts, leaving you the inability to pay your necessary bills.
A tax levy on your income, also referred to as a wage garnishment, is similar to a bank levy. Through wage garnishments, the IRS may put a levy on your regular paychecks, 1099 income, bonuses, dividends, licensing revenue, rental income, commissions, accounts receivable, 401(k) accounts, the cash loan value of your life insurance, or other sources of income.
What Must the IRS Do Before Issuing a Levy?
Generally, the IRS can only levy after the necessary criteria have been met. First, the IRS must assess the tax and second, mail you tax bills (Notice and Demand for Payment). If these demands are not satisfied, then third, the IRS must then send you a Final Notice of Intent to Levy and a Notice of Your Right to a Hearing. This notice will be mailed to you or your last known address by certified or registered mail. The levy notice will be sent to you at least 30 days before the date on which the IRS means to take levy action.
Finally, the IRS will send you advance warning of Third Party Contact that notifies you they will contact third parties, such as your bank, about your tax debts and the collection of your property or assets. If all of these events have taken place, the IRS can then enforce a levy on your assets.
How the Amount of Levied Wages Is Determined
The portion of your income that will be taken through the tax levy with the IRS, as well as the portion that will be exempt and therefore paid to you, depends on the IRS’s annual figures calculations. Everything but what is calculated to be exempt for daily living costs is to be taken by the levy. The exempt portion is based on the standard deduction and a calculated “amount determined.”
The determined exempt figure will depend on your filing status, such as if you are married filing jointly, married but filing separately, or filing as single. Figures are also subject to change if you are a Head of Household. The amount of the exempt figures will also increase if there is a dependent living in the home, and it will increase incrementally with each subsequent dependent.
The IRS will mail a Publication 1494 (calculation chart) and the notice of levy to your employer so they may determine the exempt amount based on your income. Your employer will then give you a Statement of Dependents and Filing Status, which you complete and return to them within three days. If you fail to return this form in a timely fashion, the exempt amount will be calculated under the assumption that you are married filing separate with zero dependents.
Further, if you have additional sources of revenue, the IRS may choose to recognize your exempt pay as coming from those sources and impose a levy on 100% of the income from a particular employer.
How Long Does a Wage Levy Last?
The IRS will garnish your wages until your tax debt is completely paid. The levy can be released if you pay the tax debt in full, negotiate a payment plan or financial hardship status, also called a non-collectible status.
A financial hardship status is where a levy prevents you from acquiring basic, reasonable living expenses. The validity of the claimed hardship must be determined by the IRS. If you call them to explain your financial situation, it may be useful to prepare accordingly by having relevant information regarding your finances on hand, as this is usually how they will confirm hardship. The IRS generally requires taxpayers to fill out a Collection Information Statement called a form 433F to determine hardship status or when also determining a request for a reduced payment plan.
You do have a right to appeal the levy, but only in applicable circumstances, such as if you dispute the validity of the proposed tax debt or you are requesting certain incomes to be exempt (e.g., Social Security, veteran benefits).
When you or your tax attorney are successful in getting the levy released, you are not exempt from paying the debt balance. The IRS will work with you and your tax lawyer to establish a viable payment plan or other steps to help you pay off the balance.
Avoiding a Tax Levy
Preventing a tax levy against your income or assets can be achieved by filing your federal taxes on time and paying them when they are due. You may request an extension if you need additional time to file, but know that all balances due on the tax return are due on the actual due date, despite getting an extension. It is best to pay as much as you can and work with the IRS to find some way to resolve the remaining debt.
Schedule a Consultation With Delia Law Today
Filing taxes is often overwhelming, but having a levy placed on your paycheck can be devastating. Not everyone knows all of their options when this occurs. Therefore, contacting a federal tax attorney is crucial. Skilled tax lawyers at Delia Law are available to help you with preventing or releasing a wage levy and negotiating with the IRS on your behalf.
Our attorneys have extensive experience in tax law and have helped a multitude of clients facing IRS tax problems, including wage and bank account levies. Reach out to us today to learn more about how we can provide you with exceptional legal assistance.
