An IRS levy is the seizure of a delinquent taxpayer’s property to settle tax debt. With a levy, the IRS can garnish wages, seize and sell property (including vehicles and real estate), and take money in financial accounts to offset tax debt.
This article covers the many different ways the IRS can levy property when you owe back taxes.
What Is a Levy?
A levy refers to the lawful seizure of property to resolve tax debt. Note that there is a difference between an IRS levy and a lien. While a lien is the IRS legal claim against property to secure payment of back taxes, a levy garnishes, seizes, or takes property to settle back taxes.
Read more: “IRS Tax Lien vs Tax Levy”
IRS Wage Levy: Garnish Wages and Paycheck
As mentioned earlier, the IRS can garnish wages and paychecks to offset back taxes. If the IRS seizes your wages, part of your paycheck will be sent to the IRS each pay period until all back taxes are paid in full or the IRS wage levy is released.
IRS 1099 Levy: Garnish Independent Contractor and Self-Employed Income
If you are an independent contractor, self-employed person, or a freelancer who owes money to the IRS, the agency has the authority to collect it from your 1099 income. This could be 1099 wage garnishment of payments received for goods or services, typically referred to as 1099 non-wage garnishment (since contractors are not employees).
The IRS searches W-9 records to find clients currently paying an independent contractor or a freelancer and has the client pay part of the contract amount to the IRS to settle the contractor’s tax debt.
IRS Bank Account Levy: Garnish Bank Account Funds
The IRS can also levy bank accounts of delinquent taxpayers to resolve back taxes. When a bank account levy is issued, current funds in the bank account are frozen as of the levy date. New money added to your bank account after the levy date should not be affected. The IRS provides a 21-day waiting period to allow you time to arrange to pay your tax debt or inform the agency of levy errors.
IRS Tax Refund Levy: Offset Refund
The Treasury Offset Program allows the IRS to use all or part of your federal tax refund to settle unpaid taxes. The program can also use part or all of your tax refund to pay other debts such as a delinquent student loans, state income tax liability, or past-due child and spousal support.
IRS Retirement Levy: Garnish Pensions, Retirement Accounts, 401k, and IRA
The IRS can legally garnish your 401k and other retirement accounts, including pensions and IRA, to pay your back taxes. Typically, the IRS treats retirement garnishment as a last resort since several requirements and limitations often restrict access to retirement funds.
IRS Social Security Levy: Garnish Social Security, Disability Payments, and SSDI
The IRS can also garnish social security, disability payments, and SSDI. It uses the automated Federal Payment Levy Program to levy your retirement payments, survivor payments, and Social Security disability program payments. The Federal Payment Levy Program allows the IRS to take up to 15% of social security payments.
However, the IRS cannot take children’s benefits, death payments, and Supplemental Security Income (SSI).
IRS Property Levy: Seize Property
The IRS has the power to legally seize the property of a delinquent taxpayer to resolve tax debt. When the IRS seizes your house or other property, it will sell your property and use the money from the sale to offset your tax debt. Before selling your property, the IRS calculates the minimum bid price and allows you to challenge the valuation.
IRS Unemployment Levy: Garnish Unemployment Benefits
In most cases, unemployment benefits are excluded from garnishment. However, if you owe taxes, the IRS can garnish unemployment. You should contact the IRS and work out an agreement to have your tax account set to currently not collectible status while you are unemployed.
Read more: “I’m Unemployed and Owe Back Taxes. What Should I Do?”
IRS Cryptocurrency Levy: Seize Cryptocurrency
Your cryptocurrency, including Bitcoin, Ethereum, and other crypto, is taxable. The IRS classifies cryptocurrency as property when calculating taxes. This means all virtual currency transactions are taxable just like other property transactions. Therefore, the IRS can seize cryptocurrency to settle back taxes.
Final IRS Levy Thoughts
The Internal Revenue Code (IRC) allows several IRS levies to resolve tax debt. Unless the IRC exempts a property from an IRS levy, any property or right to property belonging to an individual with back taxes can be garnished, seized, taken, or offset to settle unpaid taxes.
If you are a taxpayer who owes the IRS back taxes, do not ignore the IRS notices. It is best to pay your tax debt or make payment arrangements with the IRS to avoid wage garnishment, bank account levies, seizure of retirement funds and social security payments, tax refund offsets, and others IRS levies. You can also review tax relief services and costs for help with back taxes.
How Can Wiztax Help?
Call us today at (866) 568-4593 to learn more about how we can help with any kind of IRS levy you may be dealing with.
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