The Basics of Federal Tax Levy

The government employs two primary procedures in collecting tax debts from the taxpayers, wage levies and bank account levies.  When any of these is imposed on you, it means that you have a serious problem with the IRS.

When you incur tax debts, the IRS can levy your wages, including your retirement income, social security benefits and other bonuses that you may have earned. In fact, the IRS is the only entity that can garnish your paycheck without having to go to a trial. A simple notice from them obliges your employer to transfer a substantial amount of your paycheck to the IRS. Wage garnishment only terminates when the tax is paid off or until you obtain a wage levy release.

If you are an independent contractor or self-employed, then anyone who contractually pays you income will be obligated to pay that money to the IRS instead. Although you will still receive money from your clients, the amount will be significantly less than the normal. Questions and clarifications regarding this issue can be addressed by referring to the IRS Publication 1494.

The IRS may also impose a bank account levy and this allows them to take all of the money in any of the bank accounts under your name. Because this is a government mandate, the banks will abide by this notice and it would be useless to argue with them. However, only funds present in your bank account on the day the levy is received will be wired to the IRS. For example, if you deposit a check on Friday and the bank got a levy notice on Tuesday, only funds present on Tuesday will be given to the IRS. Funds from Wednesday to Friday can only be garnished if another levy is issued.

The law grants you with up to 21 days to convince the IRS to release the bank account levy. However, if a levy release cannot be obtained within the prescribed period, the bank can then send the funds to the IRS.  Ideally, the amount that should be transferred to the IRS should be the same as the amount owed, but if repeated tax levies are issued, then larger sums of money maybe collected.

The government may employ other less used but equally efficient collection methods aside from a wage or bank account levy. The IRS can also levy personal assets like jewelry, your home, collectables, boat, insurance policies, ATV’s, account receivables and even airplanes should situations call for it. The point is, any tax levy is an IRS problem that will not go away until you have settled what the government believes is due to them.

No matter which way you look at a federal tax levy, it will always be a serious issue. Therefore, it is highly advisable for anyone who has tax debts to settle them immediately before the government enforces more serious collection methods like wage garnishment and bank account levies.

Share on Facebook

Originally posted 2008-06-06 15:41:07. Republished by Blog Post Promoter

• How To Hedge Your Bets: 10 Ways To Diversify Your Income Jonathan Leane is today's guest blogger here at Rich Credit Debt Loan. Jonathan writes for Debt Loans. Why Diversify Your Income? Most people are familiar with the idea of diversification—it is common knowledge to not “put all your eggs in one basket”. However, this advice is most commonly applied to......
• Using a Roth IRA Withdrawal to Purchase First Home IRS regulations offer a break to first-time home buyers who withdraw funds from a Roth IRA. Typically, income earned in a Roth IRA can only be withdrawn tax free after the account holder has passed the age of 59 1/2. Non-qualified distributions before that age are charged a 10% withdrawal......