Tax Levies

A tax levy is an administrative action by a taxing authority—most commonly the IRS—to seize a taxpayer's property or assets to satisfy an unpaid tax debt. Unlike a tax lien, which is a legal claim against property that serves as a security interest and puts creditors on notice of the government's claim, a levy is the actual collection action that results in the physical or legal seizure of assets. The IRS can levy bank accounts, wages, Social Security benefits, accounts receivable, and other financial assets. The agency can also seize and sell physical property including real estate and vehicles. Levies generally occur after a series of notices and a final demand for payment have gone unheeded, giving taxpayers opportunity to respond before seizure occurs. State tax agencies follow similar processes for state tax debts. Payroll departments must understand levy procedures because wage levies—where the IRS garnishes employee paychecks—require immediate employer compliance. Aurora Training Advantage's accounting webinars provide payroll and tax professionals with comprehensive guidance on processing and managing tax levies.

The IRS follows a defined legal process before issuing a levy to collect unpaid taxes. The sequence begins when a tax balance remains unpaid after an assessment. The IRS sends a series of notices: a bill (Notice CP14), subsequent reminder notices, and ultimately a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (Letter 1058 or CP90). Taxpayers have 30 days from this final notice to request a Collection Due Process (CDP) hearing with the IRS Office of Appeals, during which the levy is generally suspended. If no response is received or the hearing doesn't result in resolution, the IRS may issue the levy. Taxpayers can avoid levy action by paying the balance, entering an installment agreement, submitting an offer in compromise, or requesting currently-not-collectible status. Employers receiving an IRS wage levy must comply promptly—typically by the next payroll period. Aurora Training Advantage's accounting and payroll webinars help professionals understand the IRS collection process and their obligations when levies affect employees.

When an employer receives IRS Form 668-W (Notice of Levy on Wages, Salary, and Other Income), they must calculate the exempt amount and withhold the remainder. The employee must complete a Statement of Exemptions (Part 3 of Form 668-W) declaring filing status and number of dependents; if not returned within three days, the employer uses single with zero exemptions as the default. The IRS provides IRS Publication 1494, a table showing the exempt amount based on the employee's filing status, pay period, and number of exemptions claimed. The exempt amount protects a minimum income from levy. The employer must remit all wages above the exempt amount directly to the IRS until the levy is released via Form 668-D or a voluntary deduction agreement (Form 2159) is established. Calculations must be performed each pay period and employers who fail to comply can be held personally liable for amounts not remitted. Aurora Training Advantage's accounting webinars walk through these calculations step-by-step with examples.

Yes, an IRS tax levy can be released or stopped through several avenues. The most straightforward is full payment of the tax liability—upon receipt of full payment, the IRS issues Form 668-D, Release of Levy. Entering into an approved installment agreement that addresses the levied balance can also result in levy release. An accepted offer in compromise that resolves the underlying debt will lift the levy upon compliance. If the taxpayer demonstrates that the levy creates an economic hardship preventing them from meeting basic living expenses, the IRS may release it and designate the account currently not collectible. Bankruptcy filing triggers an automatic stay that generally halts levy action during the proceeding. If the taxpayer was not given proper notice or has a pending innocent spouse claim, appeals or legal challenge may also result in release. Employers must continue withholding until they receive formal written release from the IRS—verbal assurances are insufficient. Aurora Training Advantage's accounting and payroll webinars provide professionals with a thorough understanding of levy release procedures and employee communication best practices.

State tax levies operate similarly to federal IRS levies in purpose—collecting unpaid state tax obligations—but differ significantly in procedure, calculation methods, and exempt amounts. Each state that imposes income or other taxes has its own levy processes, forms, and exemption tables. Unlike the federal system where the CCPA's exemption limits do not apply (the IRS has its own Publication 1494 exemption table), some states follow the Consumer Credit Protection Act (CCPA) maximum garnishment limits for state levies while others have unique rules. State levy notices may come from a state revenue department, franchise tax board, or comptroller's office and carry their own deadlines and response requirements. Employers receiving state levies must comply with state-specific rules, which vary in exemption calculation, priority relative to other garnishments, and employer administrative fees. Multi-state employers face particular complexity managing levies across jurisdictions. Aurora Training Advantage's accounting webinars provide payroll professionals with guidance on navigating both federal and state tax levy requirements in a compliant and organized manner.