If you owe back taxes, one collection tactic the IRS might use is to levy your income and bank accounts or accounts receivables. If you are a wage-earner, this process is straightforward: the IRS simply garnishes the paychecks you receive from your employer.
While the process is a little more complex if you are self-employed or an independent contractor, the IRS still has ways to levy your income.
If you are an independent contractor or self-employed individual, here is how the IRS can levy your income, including bank accounts and accounts receivables:
Can the IRS Levy Self-Employed and Independent Contractor Income?
Yes, the IRS can levy self-employed and independent contractor income.
Though this income might be harder to trace than paychecks received from an employer, the IRS has a number of options to seize your earnings, including levying your bank accounts or notifying your clients and ordering them to pay the IRS directly instead of paying you.
Will the IRS Levy Clients of a Self-Employed Individual or Independent Contractor?
Yes. If most of your independent contractor work is for a few clients, the IRS might find it easier to levy them. The way this works is the IRS effectively seizes your earnings at the source (clients) rather than waiting until you have been paid to issue you a levy.
How Does the IRS Know the Clients of a Self-Employed Individual or Independent Contractor?
If you receive a 1099 from a business or individual, then the IRS also receives a record of your work for that company or person showing how much you were paid during the year.
What Is IRS Form 668-W: Wage Levy?
IRS Form 668-W is a form sent to the employer of a taxpayer whose earnings are being levied by the IRS to cover back taxes. When the employer completes the form, the IRS begins levying the employee’s wages, effectively rerouting them from the taxpayer to the IRS.
What Is IRS Form 668-A: Bank Accounts Levy and Accounts Receivables Levy?
IRS Form 668-A is a notice of levy to a third party who is holding money or property to be paid to an individual under IRS levy. If an independent contractor or self-employed individual has unpaid back taxes, the IRS might send this form to the taxpayer’s clients or financial institution to seize money owed to them.
What’s the Difference Between a W-2 Levy and a 1099 Levy?
A W-2 levy attaches to a person’s regular paychecks and is usually continuous, meaning the IRS keeps taking money from every paycheck until the back taxes are paid.
A 1099 levy attaches to specific payments from a client to a contractor and are often one-time levies.
Is the IRS Levy of a Self-Employed Individual or Independent Contractor a Continuous Levy or a One-Time Levy?
An IRS levy of a self-employed individual or independent contractor is often a one-time levy, as these individuals’ earnings tend to be less regular and consistent than those of a W-2 employee.
That said, if a contractor or self-employed individual receives regular payments from a single client, the IRS might elect to set up a continuous levy on those payments.
How Can a Self-Employed Individual or Independent Contractor Stop a Continuous Levy?
Because ambiguity often exists in situations involving independent contractors who receive consistent, regular payments from clients that resemble W-2 wages, there can be confusion over whether a levy placed by the IRS is one-time or continuous.
Some contractors can convince a client that the levy is not continuous, but many clients prefer to play it safe and side with the IRS.
If you do not have luck talking to your client, you can get the IRS to release the levy either by paying off your back taxes with the Fresh Start Tax Relief Program, demonstrating a financial hardship or setting up a payment plan.
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