Understanding the Difference Between an IRS Levy & an IRS Lien

Last updated: Mar 07, 2019

irs levy

What if a simple misunderstanding brought the IRS to your door?

The truth is that plenty of IRS terms are downright confusing. And mistaking some of these concepts could get you in hot water.

For instance, many people do not understand the difference between an IRS levy and an IRS lien. And knowing the difference may be a real life-saver when tax time comes around.

Don’t know the difference? Keep reading our comprehensive guide to discover the answer!

What Is an IRS Levy?

An IRS tax levy (also known as a tax levy) can occur when you owe back taxes to the IRS. This is one of the primary ways the IRS gets the money that you owe.

With a levy, the IRS is actually authorized to seize your money or property in order to satisfy your debt. And these levies come in several different forms.

The most basic tax levy is wage garnishment. This is when the IRS contacts your employer and requires them to withhold a certain portion of your wages in order to pay down your debt.

Another kind of levy involves your financial accounts. This levy allows the IRS to monitor your various bank accounts and then take the funds that are necessary to pay off your debt.

If you receive Social Security Benefits, these can be levied as well. This is similar to wage garnishment, and the IRS can withhold up to 15% from each Social Security payment to help pay your taxes.

Finally, your property may be levied. This property ranges from cars and boats all the way to land and homes. The good news is that a levy on your primary residence is, legally speaking, the last resort for an IRS levy.

What Is an IRS Lien?

Compared to a levy, an IRS lien is pretty mild. However, it is the first step on the road to more serious financial consequences.

The lien occurs after the IRS warns you about taxes that you owe. If they are not paid (or at least contacted) in a timely manner, they may place a lien on your property.

Simply put, the lien legally establishes that the government now has a right to your property. And this property could eventually be seized if the taxes are not repaid.

Once you fully pay your tax debt, the lien should be removed within thirty days. Other factors may also affect the lien.

For example, you may reach a payment agreement with the IRS and make a series of regular payments. Eventually, they may agree to remove the lien. Notice that the removal of the lien does not remove your obligation to pay back the rest of the debt.

What Are the Similarities?

We mentioned before that many people get confused about IRS levies and IRS liens. This begs the question: what are the main similarities between the two?

First of all, each one comes from the IRS. And each one is a reaction to owing a tax debt to the government.

Because each one is a consequence of owing taxes, and each one starts with “L”, they can be pretty easy to confuse. Fortunately, there are several key differences to help you tell them apart.

What Are the Differences?

The primary difference between a levy and a lien involves whether the government takes any of your property or not.

With a lien, the IRS has not yet collected anything. Instead, it is simply the legal paperwork required to establish that the IRS now has a claim on your property.

With a levy, the IRS is actually taking something in order to pay off your tax debt. As mentioned above, this can range from garnishing wages and Social Security payments all the way to seizing cars and homes.

There is also a difference in how “public” each measure is. For example, a lien is public knowledge: even though they have not yet taken anything, the public will now know that you owe money to the IRS.

By comparison, an IRS levy is “secret.” Besides you, the only ones who will know about the levy are people like your bank or your employer, and that is only if they are are part of the levy process.

Finally, they have different levels of urgency. With a lien, you have a little more time to prepare your response. With a levy, it is important to immediately begin resolving the problem before your finances are ruined.

What Should I Do If I Get a Levy or Lien?

The first thing you should do in the event of a lien or levy is to contact the IRS. You must determine exactly how much money is owed and come up with a game plan to pay it back.

What you talk about with the IRS will vary based on your situation. Someone facing a lien may request an extension or enter into a payment agreement which can ultimately help them avoid the lien itself.

Someone facing a levy will need to seek out a tax professional and begin negotiations with the IRS and their employer. The sooner you do so, the sooner you can potentially reduce the amount of money that will be levied from things like wage garnishment.

An Ounce of Prevention

There is an old saying that claims that an ounce of prevention is better than a pound of cure. As it turns out, this saying is very true in the world of tax debt.

First of all, keep track of your taxes and potential tax debt throughout the year. This can help prevent you from owing money in the first place.

If you are contacted about a debt, reach out to the IRS immediately. This is your opportunity to request extensions and negotiate repayment strategies before it gets more serious.

Finally, make sure you meet with tax professionals. They can help you prepare, file, and repay taxes each and every year.

The Bottom Line

You’ve learned what an IRS levy and an IRS lien are as well as how to deal with each one. But do you know who can help you out of this sticky situation? At Precision Tax Relief, we offer the tax help you need to reduce debt and deal with liens and levies. To see what we can do, come learn more about our tax relief today!