Understanding IRS Wage Garnishment and Levies
When you owe back taxes and haven't responded to IRS collection notices, the IRS has the legal authority to seize your assets through garnishments and levies. While these terms are often used interchangeably, they refer to different collection actions. A wage garnishment specifically targets your paycheck, while a levy is a broader term that encompasses the seizure of any asset—including bank accounts, Social Security benefits, retirement accounts, and even physical property like your home or car.
The IRS doesn't need a court order to garnish your wages or levy your assets. After sending you several notices (typically a Final Notice of Intent to Levy and Notice of Your Right to a Hearing), the IRS can begin seizing your income and property. This makes IRS collection actions far more aggressive than most creditors, who must go through the court system first.
Understanding the distinction between garnishments and levies is crucial for knowing your rights and options for relief. A wage garnishment is continuous—it affects every paycheck until the debt is satisfied or alternative arrangements are made. A bank levy, on the other hand, is a one-time seizure of whatever funds are in your account at the moment the levy is processed. The IRS can, however, issue multiple bank levies if your debt remains unpaid.
How IRS Wage Garnishment Works
An IRS wage garnishment occurs when the IRS orders your employer to withhold a portion of your wages and send it directly to the IRS. Unlike other creditors who can only garnish up to 25% of disposable income, the IRS can take much more—often leaving you with barely enough to cover basic living expenses.
The amount the IRS can garnish depends on your filing status, number of dependents, and standard deduction. For a single person with no dependents, the IRS might leave you with as little as $800-$1,000 per month, regardless of your actual living expenses or other financial obligations. This aggressive garnishment continues indefinitely until your tax debt is paid in full or you make alternative arrangements with the IRS.
Your employer receives a Notice of Levy on Wages, Salary, and Other Income (Form 668-W) and is legally required to comply. They must begin withholding wages within one pay period and continue until the IRS sends a release. Employers who fail to comply can be held personally liable for the unpaid taxes. The garnishment appears on your pay stub, and while the IRS doesn't require your employer to disclose why they're withholding funds, most employers will know it's an IRS garnishment.
Types of IRS Levies
The IRS uses several types of levies to collect unpaid taxes, each targeting different assets:
Bank Account Levy: The most common type of levy, where the IRS seizes funds directly from your checking, savings, or money market accounts. Your bank must hold the funds for 21 days before sending them to the IRS, giving you a brief window to resolve the debt or claim exempt funds. Unlike wage garnishments, a bank levy is a one-time seizure, but the IRS can issue repeated levies on the same account.
Wage Garnishment: As discussed, this continuous levy takes a portion of every paycheck until the debt is satisfied. This is often the most financially devastating type of levy because it's ongoing and takes such a large percentage of your income.
Social Security and Retirement Benefits Levy: The IRS can levy up to 15% of your Social Security benefits and can also seize funds from retirement accounts, though this may trigger additional taxes and penalties if you're under age 59½.
Property Seizure and Sale: In extreme cases, the IRS can seize and sell your home, car, or other physical property. This is relatively rare because the administrative burden is high, but it does happen, especially for large tax debts. The IRS must provide additional notice before seizing your primary residence.
Business Assets and Accounts Receivable: If you're a business owner, the IRS can levy business bank accounts, equipment, inventory, and even money owed to you by customers. This can effectively shut down your business operations.
How to Stop an IRS Wage Garnishment or Levy
If you're facing or already experiencing an IRS levy, you have several options to stop or release it:
Pay the Tax Debt in Full: The most straightforward solution. Once the IRS receives full payment, they'll release the levy within 1-2 business days. However, this isn't feasible for most taxpayers facing garnishment.
Installment Agreement: Setting up a payment plan with the IRS will typically result in the release of a wage garnishment or levy. The IRS is more willing to release levies when you're actively making payments. A <Link href="/offer-in-compromise">properly structured installment agreement</Link> shows good faith and gives you time to pay the debt over months or years. Once the IRS approves your installment agreement, they should release the levy within 1-2 weeks.
Currently Not Collectible Status: If you can demonstrate that the levy is causing economic hardship—meaning you cannot meet basic living expenses—the IRS may place your account in Currently Not Collectible (CNC) status. This temporarily halts all collection activity, including wage garnishments and levies, until your financial situation improves.
Collection Due Process (CDP) Hearing: If you request a CDP hearing within 30 days of receiving the Final Notice of Intent to Levy, collection actions (including levies) must pause until your hearing is concluded. During this hearing, you can propose alternative payment arrangements, challenge the amount you owe, or raise collection alternatives. You have the right to appeal the hearing officer's decision to the <Link href="/irs-appeals">U.S. Tax Court</Link>.
Offer in Compromise: If you qualify, an <Link href="/offer-in-compromise">Offer in Compromise</Link> allows you to settle your tax debt for less than the full amount owed. While the OIC application is being processed, the IRS typically won't initiate new levies, though existing garnishments may continue.
Prove Incorrect Levy: If the levy was issued in error—such as the debt being already paid, discharged in bankruptcy, or outside the collection statute of limitations—you can request an immediate release by providing documentation to prove the mistake.
The Collection Due Process Hearing
The Collection Due Process (CDP) hearing is one of your most powerful rights when facing an IRS levy. When you receive a Final Notice of Intent to Levy and Notice of Your Right to a Hearing (Letter 1058 or LT11), you have 30 days to request a CDP hearing. This is not a suggestion—it's a critical deadline.
Requesting a CDP hearing accomplishes two important things: First, it immediately stops the IRS from levying your assets until the hearing process is complete. This can buy you valuable time—often 6-12 months—to get your finances in order or explore alternative solutions. Second, it gives you the opportunity to propose collection alternatives to an independent appeals officer who doesn't work in IRS collections.
During the CDP hearing, you can: - Challenge whether you actually owe the tax debt - Propose an installment agreement or Offer in Compromise - Request Currently Not Collectible status - Raise spousal defenses if applicable - Challenge the appropriateness of the collection action
If you disagree with the appeals officer's decision, you have the right to appeal to the U.S. Tax Court. This is a significant advantage because Tax Court provides an independent judicial review of the IRS's collection actions. However, you must file your Tax Court petition within 30 days of the CDP determination, and this deadline is strictly enforced.
Even if you miss the 30-day window for a CDP hearing, you can still request an Equivalent Hearing, which provides similar collection alternatives but doesn't include Tax Court appeal rights or automatic suspension of levy actions.
Installment Agreements as an Alternative to Levies
One of the most effective ways to stop or prevent an IRS levy is to set up an installment agreement—a payment plan that allows you to pay your tax debt over time. The IRS offers several types of installment agreements depending on how much you owe and your financial situation:
Guaranteed Installment Agreement: If you owe $10,000 or less, haven't had a payment plan in the last five years, and can pay the debt within three years, the IRS must approve your request. This is the easiest type of agreement to qualify for.
Streamlined Installment Agreement: For debts between $10,000 and $50,000, you can qualify for a streamlined agreement without providing detailed financial information. You'll need to pay the debt within 72 months and set up automatic monthly payments from your bank account.
Partial Payment Installment Agreement (PPIA): If you can't afford to pay the full debt even over 72 months, you may qualify for a PPIA where you make reduced monthly payments based on your ability to pay. The IRS will review your financial situation every two years, and any remaining balance may be forgiven when the collection statute expires.
Regular Installment Agreement: For debts over $50,000, you'll need to provide detailed financial information using Form 433-F (Collection Information Statement) or Form 433-A. The IRS will calculate your monthly payment based on your income, expenses, and assets.
Once your installment agreement is approved and you're making payments, the IRS will typically release any wage garnishments or bank levies. However, this isn't automatic—you may need to specifically request the levy release. The key is to get the agreement in place before a levy occurs, as this prevents the IRS from initiating collection actions in the first place.
Exempt Income and Partial Levy Release
Not all income or assets are subject to IRS levy. Certain types of income are protected by federal law, including:
- Unemployment benefits
- Workers' compensation
- Certain disability payments
- Child support payments you receive
- Minimum wage and certain welfare benefits
- Service-connected disability payments from the VA
Additionally, certain amounts in your bank account may be protected under the Federal Payment Levy Program (FPLP), which protects federal benefits like Social Security, SSI, and VA benefits that are directly deposited. If your bank account is levied but contains exempt funds, you have 21 days to claim those funds before the bank sends the money to the IRS.
Even if your wages aren't completely exempt from garnishment, you can request a levy release or partial release if the garnishment is causing economic hardship. To do this, you'll need to complete Form 433-A (Collection Information Statement for Wage Earners and Self-Employed Individuals) and provide documentation of your income and expenses.
The IRS is required to consider your basic living expenses when determining how much they can take through garnishment. If you can show that the garnishment leaves you unable to pay for food, housing, transportation, and other necessities, the IRS may reduce the garnishment amount or release it entirely. This doesn't eliminate your tax debt, but it provides breathing room while you work out a long-term solution.
Keep in mind that "economic hardship" has a specific meaning to the IRS—it means you can't pay for basic necessities, not just that the garnishment is inconvenient or makes it difficult to maintain your current lifestyle. Documentation is crucial: bring bank statements, utility bills, rent or mortgage statements, and receipts for medical expenses and other necessities when requesting a levy release.
Getting Professional Help with IRS Levies
IRS wage garnishments and levies are serious collection actions that require immediate attention. The longer you wait, the more money the IRS will seize, and the fewer options you'll have for relief. While you can handle some levy issues on your own, professional representation can significantly improve your outcomes, especially if you've already missed critical deadlines or your case is complex.
A qualified tax professional can help you navigate Collection Due Process hearings, negotiate installment agreements with favorable terms, demonstrate economic hardship, or pursue an Offer in Compromise if you qualify. They understand IRS procedures and can often achieve levy releases faster than individual taxpayers attempting to navigate the system alone.
If you're facing wage garnishment, have received a notice of levy, or have already had your bank account seized, don't wait. The 21-day hold period after a bank levy and the 30-day window for requesting a CDP hearing are short deadlines with significant consequences. Taking action immediately—even before the levy occurs—gives you the most options for protecting your income and assets while resolving your tax debt on terms you can actually afford.