Can the IRS Garnish Your Paycheck? The Truth About The IRS Levy Process and How to Stop It
By: Larry Weinstein, Cpa
Bank Levies and Wage Levies
If you owe taxes to the IRS and have not responded to any of the collection letters, the final and most serious letter you will receive is the letter known as the Final Notice of Intent to Levy (also know as Letter 1058). If you do not file a request for a Collection Due Process Hearing within 30 days from the date of Letter 1058, the IRS can levy your bank account, wages and other assets such as retirement accounts, to collect back taxes.
What is a Levy?
A levy is effectively a seizure by the IRS of assets or income owned by the taxpayer. A levy can be placed upon a bank account, savings account or other account, such as a retirement account. A levy can also, be placed against a taxpayer's wages or if a business, sent to a taxpayer's customers (accounts receivables).
If your bank account is levied by the IRS, the bank "freezes" your bank account for the amount of the levy, on the day the bank receives the levy. The funds that are frozen are not immediately given to the IRS on that day.
You have 21 days to work with the IRS and get the levy released. If you do not take action, your bank will send the money in your account that was "frozen" to the IRS. These funds will be credited to your account, reducing the amount owed. To get the levy released, you must work with the IRS to find a solution such as an installment agreement, currently-not-collectible, or offer-in-compromise that would be a satisfactory solution.
The levy does not affect any deposits made after the levy, unless the IRS issues another levy. Thus, if at all possible, it is always advisable, to deposit additional funds into your bank account after a levy. You will not have available the portion of your balance that the IRS levied upon. This will probably cause the bank to dishonor (bounce) any checks that are presented against your account.
The levy is effective for only the balance in your account at the time of levy. If your balance with the IRS is still not cleared, the IRS must issue a new bank levy to obtain more funds from your bank account.
If the IRS levies your wages, the levy is served on your employer. Your employer will be required to pay over a large portion of your paycheck to the IRS until your tax debt is settled. The IRS does not take all of your paycheck; they allow you to be paid the standard deduction amount plus the personal exemption amount based upon your filing status and number of dependents.
For example, if your filing status is single with one dependent (yourself), you would be allowed to keep $8,450 for the year. This equates to $162.50 per week or $704.16 per month. The amount that you earn, above and beyond these amounts, must be paid over by your employer to the IRS.
The levy on your wages will only end (a) the levy is released by the IRS (b) your tax debts are paid off or (c) the statute of limitation prevents the collection of tax
You can appeal against the action of the IRS after the levy under the Collection Appeals Program. The IRS normally suspends collection action during the appeal. If your appeal is successful, the levy will be released. You can negotiate the release of the levy with your local IRS revenue officer. You must provide the officer what they are requesting and establish a plan to resolve your outstanding tax liability. Mere promise to pay off your liability will not be sufficient.
IRS bank and wage levies are one of the most onerous and intrusive actions that the IRS can take in the collection process. It is the most disruptive to your life or business and calls for quick action to get them released.
Larry M. Weinstein, CPA is the Director of the National Tax Practice for http://www.SolveMyTaxProblems.com, and has developed a 7 Step Proprietary Process known as, the "Strategic IRS Tax Problem Resolution Process" and is the author of "The 7 Things You Must Know Before Solving Your IRS Problems-Learn How to Solve Your Problem as Quickly and Painlessly as Possible.", a copy of which is available at the website.
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