Do You Owe Back Taxes?
If so, you could face tax levies if you continue to miss payments. These penalties are serious business that could lead to devastating consequences.
A tax levy is an administrative action that the Internal Revenue Service (IRS) can take. It gives them the authority to seize your personal property to satisfy a tax liability.
If it sounds challenging, that’s because it is. Under a tax levy, the IRS can garnish your wages, seize your assets, or even access your bank accounts.
Today, we’re sharing a few more details into this process, including how you can avoid facing a levy. Ready to learn more? Let’s dive in.
How Does a Tax Levy Work?
If you do not pay your taxes on time, the IRS will take action. First, they’ll assess your liability and put your overdue balance on the books. Then, they’ll send you a bill for the balance, along with a Notice and Demand for Payment.
To avoid further penalties, you can pay off your bill right then.
If you neglect to do so or refuse to pay the debt in full, the IRS will issue an official Notice of Federal Tax Lien. This alerts every creditor that works with you that the government has a legal right to any property you own, including your personal property, real estate, and financial assets.
Once you receive this lien, you have another opportunity to pay off your taxes in full. This is the quickest way to remove the lien. The IRS will remove it within 30 days of accepting payment.
Other methods of removal include:
- Applying for a Certificate of Discharge
- Applying for a Certificate of Subordination
- Applying for a Lien Withdrawal
You can learn more about how a tax lien works and how to avoid it on this IRS page.
If you do not pay your taxes after the lien and aren’t eligible to pursue any of the other removal methods, the IRS will act on the lien. A tax levy occurs when they seize your property to pay off your debt.
The Consequences of a Tax Levy
Once your real or personal property is levied, you’ll notice major changes in your day-to-day living. Let’s review a few of the differences you’ll see.
The IRS can garnish your wages as it seeks to pay down your debt. This means your employer will designate a portion of your earnings to the government every payday.
Though the IRS will probably exhaust other tactics first, they have the option of seizing your home. They can also take and sell other personal property such as your car or boat.
Need constant access to your checking or savings account? You could lose it with a tax levy.
To recoup back taxes, the IRS will often contact your bank or credit union and place a 21-day hold on your accounts. If you do not work out payment during that time, a portion or all of your money could go to the government.
Avoiding a Tax Levy
Want to avoid a tax levy? Doing so is a straightforward process. Let’s review a few of your options.
Pay Your Bill
As stated, the easiest way to avoid a tax levy is to file your returns on time and pay your taxes when they’re due. If you miss the first due date in April, you can file an extension.
Establish a Streamlined Installment Agreement
You can also work with the IRS to set up a monthly payment plan, known as a Streamlined Installment Agreement (SIA) that allows you to pay down your balance. Keep in mind that even with this setup, you’ll still accrue interest and penalties on your tax balance until you pay it off in full. If you’re unable to make the standard monthly payments under the SIA, you can negotiate smaller monthly payments through a Partial Payment Installment Agreement (PPIA).
Sometimes, you can remove the tax lien from public record by entering a Direct Debit Installment Agreement with the IRS. This allows the government to take at least three consecutive payments from your bank account.
Request an Offer in Compromise
An Offer in Compromise (OIC) is an arrangement in which you’ll pay the IRS less than the full amount you owe in back taxes. As it can be a difficult case to make, you can save time and headache by finding out if you qualify for this setup. If you’re in the middle of an audit or in an open bankruptcy proceeding, the answer will be “no.”
To receive consideration, you must file all of your federal tax returns first. You’ll also have to make all of your required estimated tax payments for the current year.
File an Appeal
Do you want the government to review your tax lien or tax levy? If so, you can file a request with the IRS Office of Appeals to perform a Collection Due Process Hearing.
It’s also within your rights to hold a conference with an IRS employee’s manager if you feel that the specific employee made an unjust or unsound decision by pursuing the lien or levy.
Apply for Currently Not Collectible Status
Sometimes, you may be able to prove that you cannot pay your back taxes without suffering substantial economic hardship. This means applying for Currently Not Collectible Status or Hardship Status.
The IRS will continue to evaluate your case regularly, making this a short-term solution to your tax debt.
We’ll Help You Tackle Your Tax Levies
When you’re faced with a tax lien, you might feel helpless and unsure where to turn. This is especially the case when the lien turns into a levy and your assets begin slipping away.
This is where we come in.
We’re tax relief specialists skilled and experienced in helping taxpayers end tax levies, liens, and other complications. Most times, we can stop the levy in 24 hours. Then, we’ll work with you to address your back tax issues by negotiating with the IRS or challenging the IRS’ claims.
Contact us today to learn more about how we can help.