In 2018, the IRS collected more than $55 billion in unpaid taxes. These collections can take many forms, including asset levies to recover back taxes and penalties.
If you’ve received a levy notice from the IRS, you may wonder what can the IRS levy to recover your taxes owed. These levies can take many forms, depending on what you owe and the easiest way they can recover the amounts required.
These levies can target your wages, bank accounts, real estate, and other property. Each type of levy can affect your financial situation in different ways. It’s important to understand what the types of levies have access to and how much each type of levy can access.
Levy vs. Lien: What’s the Difference?
The IRS has two major actions they can take to seize your assets, liens and levies. To understand the actions taken, you need to understand the difference between a lien and a levy.
An IRS lien is the first step in seizing property to cover back taxes. The lien gives the IRS the legal ability to your property. This acts as a warning to deal with the taxes owed.
The levy action is the actual seizure of property to cover taxes owed. The IRS will send a notice of levy intent, giving you 30 days to respond or contest the action.
What Can the IRS Levy?
The IRS can levy any property they determine as the best form to recover taxes.
- Bank accounts
- Real estate
- Insurance policies
The amounts taken from each type of property will depend on what property they place a levy on, and the amount you owe.
Can the IRS Levy Wages?
The most common type of levy comes in the form of a wage levy. The IRS will contact your employer to send a percentage of your wages directly to the IRS to cover the back taxes owed. The percentage levied will depend on your financial situation.
This type of levy will continue until all taxes, penalties, and interest get paid or the tax debt expires. Tax debt has a ten-year limit.
What About Bonuses?
If the IRS places a levy on your wages, they can also levy any bonuses you receive. Since a bonus is extra, it’s not considered a hardship to take the full bonus amount towards your taxes owed.
What about 1099 Income?
A 1099 form is a form used to report income from a person or company you don’t formally work for. People doing freelance or temporary work will use these forms to report income received for odd jobs.
This 1099 income can fall under a tax levy the same as regular wages. Failure to file a 1099 to report income can also cause tax issues down the road.
Can the IRS Levy a Bank Account?
If the IRS can’t resolve your tax issues with other property, they can put a levy on your bank accounts to recover taxes. They contact your bank to put the funds on hold for 21 days.
After the 21-day hold, the IRS will remove your funds. If you owe more money, this process can continue whenever you have funds. They can wipe out your accounts in this process.
Can the IRS Levy a Joint Bank Account?
The IRS can use a joint bank account to recover your back taxes if you’re a primary on the account. There is some protection for your loved ones if you aren’t a primary on the account.
If your name is on an account, but the money is used by someone else, you can file to get those funds back. You must prove the money belongs to someone else to recover any funds levied from a joint account.
Can the IRS Levy a Business Account for Personal Taxes?
You also have some protection in the division of business and personal bank accounts. The IRS will not levy your business accounts to cover personal taxes owed.
Can the IRS Levy Other Monetary Accounts?
Your wages and bank accounts aren’t the only monetary accounts available to the IRS to recover back taxes. Any accounts under your name can get used to pay what you owe.
- Retirement accounts
- Insurance accounts
If you have retirement or life insurance accounts, the IRS can access these funds to cover your taxes. This includes any other funding accounts such as savings in your name. They can also levy commissions you receive to cover the amounts.
Can the IRS Levy Physical Property?
If you have physical property that can help cover the amount owed, the IRS can seize this property in a tax levy. Any assets you have in your name comes into play in a property seizure. This includes real estate, vehicles, or other valuable physical property owned by you.
These property levies can cause issues if you’re attempting to sell property, so you need to stay aware of this possibility.
How Can You Avoid a Levy?
If you want to avoid a tax levy on your property, make sure you file all taxes or extensions on time. You also want to make sure you work out any payments quickly.
If you find yourself behind on your taxes, make sure you contact the IRS to work out a payment plan before they start taking action. Also, make sure you respond to any communications you receive from the IRS.
IRS workers are willing to work with you if you’re willing to work with them. They’re more interested in getting your taxes paid than in taking property from you.
What Can You Do if a Levy Already Exists?
What can the IRS levy? They can levy anything available to cover your back taxes. If you get to the point of a levy, you should work to resolve the issue immediately.
If you’re not sure where to start, you can contact tax relief services to help you determine the best way to handle your tax issues. Check out how tax relief services can help you with a tax levy.