A levy is different from a lien. A lien secures the government’s interests in the taxpayer’s property. A levy takes the property to pay the taxes owed. There are several types of levies- some are one-time levies (i.e., seize the amount one-time) and some are continuous levies (i.e., continuous seize amounts until the tax is paid in full or an agreement is reached with the IRS to release the levy).
A wage garnishment is also a type of continuous levy. In a wage garnishment, the employee is allowed to keep a certain amount, based on their filing status and number of exemptions.
Here are the types of levies and how they work:
| Types of common levies | ||||
| Type | Timing | Amount | How it works | |
| Bank | One-time, up to balance owed | Balance in account at time of levy (up to balance owed) | Bank freezes funds at time of levy and sends to IRS in 21 days. Form 8519 sent to taxpayer after levy issued. | |
| Wage garnishment | Continuous, until balance paid or agreement | Calculated, based on filing status and exemptions. | Employer receives and employee requests garnishment exemptions within 3 days with employer. | |
| Social security (CP91) | Continuous- survives CSED | Generally, 15% of check | CP504 allows IRS to levy SS proceeds. CDP rights are post-levy. | |
| State income tax refund (CP92) | Continuous, until paid or agreement | Up to balance owed. | CP504 allows IRS to levy SITR. CDP rights are post-levy. | |
| Contractor (accounts receivable) | Can be continuous, until paid or agreement | 100% of invoice, up to amount owed | Form 668-W for “other sources of income” and all payments go to IRS | |
A levy is generally released when a taxpayer enters into a collection agreement with the IRS (extension to pay, payment plan, or a hardship agreement). If the levy is causing financial hardship, such as inability to meet basic living expenses (missed rent or car payments, utility shut-off, etc.), the IRS can also release the levy.
Avoiding Levies
Taxpayers can avoid a levy by getting into one of the agreements with the IRS. Levy avoidance can be achieved even when a taxpayer is in a hardship agreement such as currently not collectible status. Taxpayers must work with the IRS quickly before a pending levy notice is issued (generally, IRS Letters LT11 and L1058).
