How to Stop (or Release) a Tax Levy

If you are past due on income taxes, the federal or state government may issue a tax lien on your property and other assets. This lien serves as an official notice that the government plans to collect payment for your debts.

A tax levy occurs when the government acts on the lien and begins seizing assets, such as property, bank account funds, and wages. You can take several steps to stop a tax levy. Here’s how.

How to stop a tax levy

You can take different steps to stop a tax levy, depending on whether you agree that your tax bill is correct. If you think your bill is incorrect, you can file an appeal. If you decide the bill is accurate, you must pay the taxes. But you have options.

Approach	Best for
Pay in full	Quickly removing a levy
Payment plan	Removing liens from public record
Offer in compromise to reduce debt	Organized taxpayers with levies
File for bankruptcy	State levies you can’t repay
Request an appeal	Incorrect tax bills

How to stop a tax levy if you accept your tax bill

If you receive a levy and agree with the tax bill, you have several options to handle the debt:

Pay in full

Paying your balance in full is the quickest way to remove a tax levy. For example, if you owe $5,000 and pay that amount, your balance is cleared. The IRS releases the levy within 30 days, and state timelines are similar

Payment plan

If you can’t pay in full, a payment plan is a viable option. You can set up a plan on the IRS website or through your state’s tax board. Although interest and penalties will continue to accrue, making three consecutive payments allows you to request the IRS remove the lien from public record. Payment plan fees range from $0 to $225, depending on your debt and income level.

Offer in compromise

An offer in compromise allows you to settle your tax debt for less than you owe. While approval is not guaranteed, it’s worth considering if you’ve filed all your tax returns and made estimated tax payments for the year. If accepted, you must repay the debt as a lump sum within five months or through a payment plan within 24 months.

Bankruptcy

If you can’t repay your tax debt, bankruptcy might be an option. However, its long-term consequences include poor credit. Chapter 13 bankruptcy can discharge state tax debt after you complete a payment plan. To qualify, you must file tax returns for the previous four years and pay taxes while the case is ongoing. Federal tax debt is usually not forgivable through bankruptcy.

How to stop a tax levy if you disagree with your tax bill

If you disagree with a tax levy, you can file an appeal:

Request an appeal

The IRS offers two appeal options for federal levies: Collection Due Process (CDP) and the Collection Appeals Program (CAP). Both allow you to request a review of your tax levy or lien. CDP lets you pursue legal action if you’re unsatisfied with the results, while CAP does not.

• CDP: Send the appeal form within 30 days. The levy stops during the review.
• CAP: Typically faster, starting with a phone call with a collections manager before filing an official appeal.

For both appeals, mail your request to the collection office that sent you the lien notice. For state tax appeals, follow the instructions on your state’s tax board website.

What must happen before a tax levy can be enforced?

When the IRS or state government cannot collect outstanding tax debt, they may use a tax levy. Levies should never be a surprise; the agency must send notice at least 30 days in advance. The IRS will deliver the notice; it will not call you.

Before issuing a levy, the IRS or state government must:

1. Calculate the exact amount owed and send a “Notice and Demand for Payment.”
2. You must refuse or fail to pay the taxes owed.
3. Send a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing” at least 30 days before the levy begins.
4. Notify you of their intent to contact third parties, such as your bank or employer, to collect the money owed.

Types of tax levies

The IRS or state government can use different strategies to reclaim money owed, including seizing cars, boats, houses, wages, retirement accounts, dividends, bank accounts, licenses, rental income, life insurance cash value, and commissions. The type of levy does not change the steps to respond but may influence how you stop the levy.

How long does it take to remove a tax levy?

The timeline for removing a tax levy depends on the approach. Paying in full is the fastest method, often removing the levy within 30 days. Other options can take several months.

Approach	Estimated timeline
Request an appeal	Multiple months
Pay in full	30 days
Payment plan	180 days or more (lien suspended while applying)
Offer in compromise to reduce debt	Multiple months
File for bankruptcy	Multiple months (lien suspended while filing)

Differences between stopping an IRS or state tax levy

The main differences are the agency you work with and whether bankruptcy can be used.

For federal taxes, work with the IRS; for state taxes, work with your state tax board. Both allow for appeals, payment plans, and offers in compromise, but federal tax debt is not often dischargeable through bankruptcy.

Read More

How to get out of tax debt

Does the IRS file one tax levy for all assets?

Once you get a notice, the agency can levy any asset or account without sending individual notifications for each. Instead, you receive one notice of Third Party Contact informing you that the agency intends to contact companies or organizations with access to your money.

What are the fees for a tax levy?

There are no specific fees for a tax levy, but you must pay interest and late penalties for overdue taxes. The failure-to-pay penalty is 0.5% per month, up to 25%. If not paid within 10 days of receiving a notice of intent to levy, the rate increases to 1%. Interest charges are 7% for unpaid balances, compounding daily.

What happens if you don’t stop a tax levy?

If you don’t stop or pay a tax levy, the agency will seize your assets to repay the debt. Insufficient funds can lead to overdraft charges and make managing daily expenses difficult. Although a levy is not part of your public record, a Notice of Federal Tax Lien is public, which credit agencies can add to your credit report, affecting your ability to get loans.

How can I avoid a tax levy in the future?

The best way to avoid a tax levy is to file taxes annually and pay any owed amounts by the due date. If you can’t make the payment, contact the IRS or your state tax authorities to request a payment plan. Tax levies are a last resort for these agencies, which prefer to find a workable solution.

Who to contact for help stopping a tax levy

Dealing with tax authorities can be complicated. For help stopping a levy, you can contact:

• Taxpayer Advocate Service (TAS): An independent agency within the IRS that assists taxpayers and ensures they understand their rights. Call TAS at 877-777-4778, or contact your local office. 
• Tax relief company: Private companies that handle logistics and advise you throughout the process. Check out our resources on the best tax relief companies.
• State tax board: Each state offers free advocacy to help if you’re experiencing financial hardship due to a levy.

FAQ

Can the IRS take all your assets?

The IRS can seize your assets, including real estate, cars, boats, bank accounts, retirement accounts, and pensions, to repay your tax debt. The only expectation is that the IRS must refrain from seizing tools necessary for business. If you need the asset to complete your job and earn money, the IRS will not take it. 

How much can the IRS levy?

The IRS can levy your paycheck, but part of your earnings are usually exempt from the levy. The agency uses a calculation to determine the exempt amount. It considers the standard deduction of $27,700 for married couples filing jointly and $13,850 for single taxpayers. 

The IRS also considers the number of dependents you have in the year you receive the levy. If the levy causes immediate economic hardship, you can contact the IRS for assistance. 

Can an enforced tax levy be reversed?

If an asset is seized and you believe it was an error, contact the IRS to release the seizure. If the IRS denies your request, you can appeal the decision. You can also request a release of the seizure if it causes immediate economic hardship.