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IRS Levy: The Difference Between Tax Liens And Tax Levies

Levies and liens make things complicated for the American taxpayer. Find out how best to rid your record of levies and liens.

In this article:

  1. Know the Differences
  2. What Is a Tax Lien?
  3. Effects of a Tax Lien
  4. What Is a Tax Levy?
  5. How Do Tax Levies Work?
  6. How Do You Get Rid of a Tax Lien?
  7. How Do You Get Rid of a Tax Levy?

How Are Levies and Liens Different from Each Other?


Know the Differences

When you owe back taxes to the Internal Revenue Service (IRS), the agency can use all kinds of methods to collect those funds.

Do You Qualify For IRS Back Tax Relief? Take The Quiz Now!

In most cases, you receive several notices before the IRS takes action, and the notices tend to mention a number of collection activities including liens and levies. Although these terms are similar, they denote very different things.

Here’s an overview of the differences so you know what to expect.

What Is a Tax Lien?

Simply put, a lien is a legal claim to your assets.

For instance, when you have a car loan, the lender has a lien on your vehicle. If you don’t repay your loan, the lender can take your car.

With a tax lien, the IRS issues a notice that it has a legal right to your assets. Basically, the IRS is saying that if you sell or acquire any assets, the IRS has the right to take the assets or any money generated from their sale.

Effects of a Tax Lien

In the past, tax liens used to appear on your credit report. As a result, they severely affected your ability to get credit.

When lenders see that the government has a claim to your assets, they become less likely to approve loans. As of April 2018, however, the credit reporting agencies (Experian, TransUnion, and Equifax) no longer put tax liens on your credit reports.

Although that change may diminish the potential effect of a tax lien, the government’s claim to your assets still stands. If you declare bankruptcy, the tax lien ensures that the IRS is one of the creditors that gets paid first.

What Is a Tax Levy?

young woman worried about bills | IRS Levy:The Difference Between Tax Liens and Tax Levies | tax levy
Levy Definition: It is an imposed legal collection of taxes, fines, or fees.

A tax levy is when the government actually takes or levies your assets.

When you have tax debt, the IRS can levy your wages, as well as material assets such as cars, property, and funds in your bank account.

Note that although the IRS can take homes, that is a complicated process, and in most cases, your primary home should be safe.

RELATED: 9 Most Common Types Of Tax Liens

How Do Tax Levies Work?

Before levying your assets, the IRS has to send you a demand for payment. Then, the IRS has to send you a final notice of intent to levy your assets and notify you of your right to a trial.

The final notice must be hand delivered or sent by registered mail to your last known address.

Finally, the IRS must wait 30 days between issuing the notice and levying your assets.

In rare cases, such as if the agency thinks you might flee the country, the IRS does not have to give you 30 days. Instead, the agency can levy your assets right away.

Typically, you should receive a notice outlining which assets the IRS plans to levy. Then, the IRS also notifies the other people involved.

Do You Qualify For IRS Back Tax Relief? Take The Quiz Now!

For example, if the agency is going to levy your wages, it notifies your employer. Then, your employer is legally obligated to withhold a certain portion of your paychecks and send the funds to the IRS.

Similarly, if the agency wants to levy your bank account, it sends a notice to your bank. The bank puts a freeze on your funds, and you have about 21 days to either rectify the situation or lose your money.

If you don’t work for an employer, the IRS can actually levy payments from your clients. In these situations, the IRS may stake a claim to your accounts’ receivables (invoices that your clients are supposed to pay).

They may also contact businesses or individuals who pay you as a contractor, and they may instruct those entities to send the payments to the IRS instead of to you.

How Do You Get Rid of a Tax Lien?

The fastest and most effective way to remove a tax lien is to pay off your entire tax debt. Once you make a full payment, the IRS should remove your lien within 30 days.

You can have the lien discharged or removed from certain assets, but usually, you have to meet certain criteria to qualify. For best results, you should work with a tax specialist to ensure the process goes smoothly.

In special circumstances, you can also have the lien subordinated. This simply means that the IRS agrees to place their lien at a lower priority than another creditor.

For instance, if you need to get a mortgage, the IRS has to agree to subordinate its lien so that the mortgage company can have first “dibs” on the property if you default on the loan.

Finally, when you set up a payment plan, you may qualify to have the lien withdrawn. That erases the public record of the lien, but you still owe the funds.

How Do You Get Rid of a Tax Levy?

To get rid of a tax levy, you can pay your tax debt in full, but for most people, that’s not an option.

Luckily, if you don’t have all the funds, the IRS has a number of options. You can set up an installment plan, where you make monthly payments on your tax debt for up to five or six years.

Alternatively, you can apply for an offer in compromise. That’s where the IRS agrees to accept less than you owe, and the rest of the debt simply gets erased.

You need to meet strict criteria to qualify, and the application process can be complicated. So, it’s best to work with a professional. Usually, you have to make a lump sum payment all at once, but in some cases, you can make up to five payments over a two-year period.


Check out the difference between a tax lien and tax levy by watching this video from Bob Boeshaar:

Tax liens and tax levies can be difficult to handle. To protect your assets, you should try to work out arrangements with the IRS before the tax levy or lien starts.

If you are struggling with tax debt, you are not alone, and we can help. To learn more, contact us today. We can help you find relief from tax issues.

Have you ever found yourself faced with a tax lien or a tax levy? How did you solve it? Share with us some practical tips and your experiences in the comments section.

Up Next: Wage Garnishment: What To Do If The IRS Garnishes Your Wages