The US Internal Revenue Service (IRS) estimates that around 3 percent of eligible taxpayers in the US don’t file tax returns. This amount equals roughly 14 million taxpayers who owe more than $130 billion to the US government.
When this failure to pay takes place, the IRS is entitled by federal law to issue a tax levy on those who owe back taxes. Tax laws can be complex and always changing.
Here is a breakdown of the IRS tax levy rules for 2024 that you need to know. Learn what you can about tax levies and how to deal with them.
What is a Tax Levy?
A tax levy is a seizure of any of your assets to satisfy back taxes you might owe. The IRS can levy bank accounts, social security payments, and real estate.
The IRS can levy assets you have in your direct control. They can also levy those holdings you have in a third party vendor, like an investment brokerage or bank.
The government might also impose an IRS wage garnishment on your paychecks. This means that your employer will be directed to withhold a percentage of your wages until your back tax debt is paid off.
The good news is that IRS wage levies will not affect your overall credit score.
Sometimes people confuse the terms tax levy and tax lien A tax lien is when the government makes a claim that you owe back taxes. Tax liens are usually the last effort to force businesses or individuals to pay their back taxes.
A tax levy is the physical removal of funds or property from your possession. The IRS can take away your vehicle, house or other personal property. The law entitles them to sell these items to honor your tax debt.
IRS Tax Levy Rules and Process
If you owe the IRS money, they will send several letters your way before they impose a levy. If you still haven’t paid, the last letter they send your way is called a Final Notice of Intent to Levy and Notice of Your Right to Hearing.
At this point, it’s wise to connect with the IRS directly to begin a conversation about what you owe. If you agree with this Final Notice of Intent, you should pay the total amount by the due date listed. If you can’t pay this amount that’s due, you can ask for an online installment payment agreement.
Installment Payment Agreement
An installment payment agreement allows you to pay off your taxes incrementally over a period of time. The IRS will apply a setup fee for installment agreements that run over 180 days.
Offer in Compromise
Another process you may be eligible for is called an Offer in Compromise. An Offer in Compromise lets qualified individuals negotiate their unpaid tax debt for an amount that’s less than the full amount owed.
The IRS can accept your Offer in Compromise if one of the following factors apply:
- Your tax debt isn’t calculated correctly
- You have insufficient income or assets to pay the amount owed
- Other exceptional circumstances that would create economic hardships for you if you paid the full amount.
When you apply for an Offer in Compromise, you will make an initial payment and pay an application fee. Lower-income taxpayers may qualify for a waiver of both the initial payment and application fee.
Before the IRS will consider your request, you must file all of the tax returns that you are required to make. Calculate your tax payment estimate for the current tax year and make any deposits for the recent quarter.
The IRS won’t review your request if you are undergoing an audit or filing for bankruptcy. Refer to the online Offer in Compromise Pre-Qualifier to see if this process is the best approach to help resolve outstanding tax debt.
Feeling Overwhelmed?
Collection Periods Allowed by Law
Existing law states that the IRS can try to collect unpaid taxes for 10 years from the day they were first assessed. There may be some instances where this time can be put on hold. These instances might include:
- Foreign residency: If you continuously live outside the US for 6 months, collection is postponed while you are outside US territories
- Applying for an Offer in Compromise or Installment Agreement: If you are in the process of applying for either of these avenues, collections are suspended as the IRS reviews your request.
If your request for either one of these processes gets rejected, collection is suspended for another 30 days.
- Bankruptcy: If you are in bankruptcy proceedings with an automatic stay, the IRS will stop their collection attempts. These attempts will stop for another six months.
- Collection Due Process Hearing: A collection due process hearing (or CDP hearing) is when you appear before an impartial officer to challenge any liens or levies the IRS intends to file against you.
If you are in the middle of a CDP hearing process, collections will be postponed until you receive a Notice of Determination from your CDP hearing. - Innocent Spouse Relief: Collections will be postponed if your CPD hearing ultimately decides you qualify for innocent spouse relief. Collection activity will stop until 90 days after this decision is issued.
If you appeal this decision, your collections could be postponed for up to another 120 days once all appeals are exhausted.
Next Steps
If you received notice of an impending IRS tax levy, you should contact the IRS right now. If you have the right amount of cash flow, an installment payment plan over a period of time might be right for you. Head to the IRS website to see if an Offer in Compromise is a better fit for you.
If you find yourself on the receiving end of an IRS levy, give us a call. You can get a free, no-obligation consultation with us on how to navigate this process. Let us negotiate a resolution on your behalf so you can get your life (and your taxes) back to normal.
