Posted by Karen Munoz, EA

Understanding Tax Levy & its Effect

Understanding Tax Levy & its Effect

A tax levy is any collection employed by Uncle Sam and other tax authorities like the state treasury to settle tax debts that people owe.

The process involves collecting and seizure of assets (tangible and intangible assets) in a series of ways. In many ways, funds will be garnished from one's wages and might be removed from the bank account as well. 

The IRS seizure is so powerful that they can take any property from you without taking you to a court or winning any court case against you. 

If you owe the IRS any unpaid tax debt, a levy could occur. Also, failure to file taxes on time or pay enough might trigger some warning from the IRS. 

Types of tax levy

Wage garnishment: the most common type of tax levy is wage garnishment. For people with levied wages, the employer will be mandated to hold a certain proportion of the pay and forward it to Uncle Sam to settle the tax bill. After the employer receives Uncle Sam's notice, they have one full payment before withholding from the pay. 

The levy will be effective till the tax debt is settled or until you have a resolution with the IRS. If the wage being garnished is the first one, the Consumer Credit Protection Act protects the employee from the sack. 

Bank levies: With this, Uncle Sam will contact the bank and be instructed to hold the funds available.  In other words, freezing the account and the bank may and may not notify the individual. After three weeks, such reserved funds will be deducted from the account. 

However, there are some funds protected like child support funds, social security funds, etc. The decision of which funds to keep is a factor of the bank.

Property Seizure 

Examples of real and physical properties that can be levied are car, house, boat, etc. Uncle Sam can seize such property, sell and use the funds to cover the tax debt.

Usually, Uncle Sam will post the sale of the property for public access for at least ten days before the final sale. The owner will also be aware of the sale notice, and any amount left after covering your tax debt will be provided to you.

The good news is that this is a rarely used levy withheld for the strangest and most severe cases like illegal tax issues and fraud.


Reduced tax Refund 

For people due for tax refunds, Uncle Sam can deny paying such people their funds but rather apply the funds to take care of the debt. This also applies to state refunds.


Understanding what happens in a tax levy

Like many warnings from Uncle Sam, a tax levy will typically come through a series of warnings. There would have been a series of notices from the IRS of the forthcoming tax levy. As a result, a tax levy will not be something that will surprise the recipient. . 

  1. Series of notices and demand for payment 

  2. A notice telling you of the intent to levy

  3. The last and final notice is titled Final Notice of Intent to Levy and Notice of Your Right to a Hearing. This will let you know the levy is imminent.

The final notice described above will be sent a month before the levy, which might be delivered by mail, in person or even at your office. 

With this notice, you will be aware of your rights to appeal, alongside how to go about it.



Karen Munoz, EA
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