Facing an IRS lien or levy?

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IRS Tax Levy vs. Lien: How Are They Different?

Avoiding paying taxes is impossible. You’ll face government tools like the IRS tax levy and tax lien. Reports show 40 percent of all the money the United States Treasury collects is from individual income taxes proves the same.

In roughly equal measure, at least 40 percent of American households don’t pay income tax. Some do it knowingly, while others out of a mistake.

The ugly reality tax defaulters face comes in the form of IRS filing claims against their properties.

Staying in the good books of the tax man needs some tax knowledge. Start by learning the difference between a tax levy and the IRS lien. You’ll find this information insightful if you owe back taxes, want to have a better understanding of your situation, and know how to best address it.

The IRS Lien Is a Claim Against Your Property

When you have a tax debt, the first step the IRS will take is to place a legal claim against your assets. They won’t take your property, yet. The claim aims to secure payment to settle your tax debt.

You’ll be aware of a lien because the IRS will actually send you a bill after assessing your tax payment history and noted you owe back taxes.

The IRS lien on property is different from a levy. The latter involves the legal seizure of your assets.

They’ll place the levy on all assets in your name and all applicable properties. It applies often to the following.

  • Salaries
  • Payments from subcontractors
  • Retirement accounts
  • Savings and checking accounts
  • Accounts receivable

Although the consequences of a levy are unpleasant, the law will prevent the IRS from seizing the following sources of income and assets.

  • Your tools of trade
  • Unemployment benefits
  • Household items
  • Workers’ compensation

The law against levying on the listed items aims to ensure that you can sustain yourself during illness and the financial difficulty period.

A Lien Precedes a Levy

Although both a lien and levy are IRS tools to satisfy tax debts, the levy kicks in after you’ve failed to get rid of the lien.

You’d better act on a lien before it gets to later stages. Steps down the line will have you work hard to try to clear your records from the public domain.

Waiting for a levy to hit you will have even a nastier taste, which involves taking away what you’ve worked for through your career.

You can do the following to stop the IRS from proceeding to seizing your property.

  1. Start paying your tax bill – Cooperate with the collection officers and agree on how you’ll be paying your tax debt.
  2. Choose an IRS payment plan and stick to it – Your tax debt accrues interest until you clear it. You can allow the IRS to take three consecutive payments from your bank and then request them to scrap your details from the public records.
  3. Submit a request for an Offer in Compromise – This option allows some defaulters to pay less back taxes that they owe. However, it’s not guaranteed hence don’t put all your hopes here.
  4. File for an appeal – Opt for this step if you disagree with the decision of the IRS regarding your lien or levy. They’ll review your case before taking further action.
  5. File for bankruptcy – This option can get you out of debt, but it is not pretty. It is a long process and your lien details may still be on the public domain after your bankruptcy.

Each step has its quirks, but they are in order of simplicity. It is easy to start paying off your taxes than to lodge an appeal or go for filing for bankruptcy.

Feeling Overwhelmed?

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A Levy Is Not a Public Record, But A Lien Is

A tax lien is a matter of public record while a levy is not. However, the levy is a nightmare to many who have back taxes.

It’s pretty clear why many would rather live with a lien, which is a public record, than its older brother – levy.

What’s a levy? The levy will give the government the legal right to take your property to recover the tax you owe the Federal Government.

Contrary to a levy, a Federal lien becomes a public record after the following sequence of events.

  • The IRS assesses your liability to determine if you have a tax debt
  • They send you a bill if you owe taxes
  • You fail to fully pay the taxes you owe in time
  • The IRS files the Notice of Federal Tax Lien (This is a public document accessible by anyone)

This document notifies creditors that the government has a legal claim to your assets

Anybody can access the Notice of Federal Tax Lien and find out you have back taxes.

When acting on a tax levy the IRS doesn’t put any public notice, but the consequences are dire.

A Lien Can Affect Your Credit Score

Once you get a get bill from the IRS informing you about your tax debt, your credit score will be on shaky grounds.

Although you’ll get another notice of the IRS’s intent to file a Notice of Federal Tax Lien, once the document goes public, creditors can access the information. In turn, credit reporting agencies will include your tax debt in your credit report.

A tax lien can also affect your businesses and assets. Filing for bankruptcy with a lien hanging over your head may not do much. The Notice of Federal Tax Lien may continue after you’re after your bankruptcy.

Bottom Line

The differences between the IRS lien and levy is essential in knowing how to handle your tax debts. However, you’d want to stay clear of either because of how both can affect your financial stability.

While your credit score can take a nosedive thanks to a lien, a levy will leave you helpless when the IRS seizes your property.

Always pay your taxes in time or have a professional do it for you.

Check out our services page for more information about what we offer.

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Facing an IRS lien or levy?

Understanding the difference between an IRS lien and levy is crucial for managing tax debts. If you’re facing these issues, our team can provide expert advice and assistance to navigate and resolve them.
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See all 1573 reviews

Hear From Our Clients

Set up your FREE Consultation

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A licensed tax professional will contact you within one business day

or Call 1-855-212-5900