How to Stop (or Release) a Tax Levy

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

A tax levy is when the government acts on the lien and begins to take assets. With a tax levy, the government uses different collection forms, including property seizure, bank account withdrawals and wage garnishment. 

It’s an intrusive process, but there are steps you can take. Here’s how to stop a tax levy.

What must happen before a tax levy can be enforced?

When the IRS or state government agency cannot collect outstanding tax debt, it utilizes a tax levy. Levies should never be a surprise, and the agency must always send notice at least 30 days in advance. It is important to note that the IRS will physically deliver the notice, at this time the IRS will not call you to notify you of a tax levy. 

Before resorting to a levy, the IRS or state government must meet the following requirements.

1. The agency must calculate exactly how much you owe and send a “Notice and Demand for Payment.” The document is a tax bill that outlines the amount you owe.
2. You must refuse or fail to pay the taxes you owe. 
3. The agency must send a “Final Notice of Intent to Levy and Notice of Your Right to A Hearing” at least 30 days before the levy begins. You can receive the notice in person, through the mail at home or work, or your last known address.
4. The agency must notify you of its intent to contact third parties like your bank or employer to collect the money you owe. 

Are there different types of tax levies?

Once a levy is issued, the IRS or state government can use different strategies to reclaim the money you owe. The agency can seize assets you own, like a car, or assets that are yours but held by someone else, like a retirement account. 

Here’s a complete list of the types of tax levies:

• Cars
• Boats
• Houses
• Wages
• Retirement accounts—401(k)/employer-sponsored retirement plans cannot be garnished if you are not able to make distributions, meaning you’re still employed and under ages 55 or 59½ 
• Dividends
• Bank accounts
• Licenses
• Rental income
• The cash loan value of your life insurance
• Commissions

The type of tax levy does not impact the steps you take to respond. But whether or not you agree the tax bill is accurate will determine how you stop the tax levy.

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 for how to do so.

Approach	Best for
Request an appeal	Incorrect tax bills
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 cannot repay

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

You have options if you receive a levy and agree that the tax bill is correct. You must handle the debt, but you can take different approaches, including an offer in compromise, payment plans and discharge through bankruptcy. Here’s how you can proceed. 

Pay in full

Paying your balance in full is the quickest and most effective way to remove a tax levy. For example, imagine you owe $5,000 and make a lump sum payment of $5,000. After the tax agency receives it, your balance is gone.

The IRS releases the levy within 30 days. The timeline for state liens varies from state to state but is similar.

Payment plan

Payment plans can be a solid option if you can’t pay your balance in full. You can apply on the IRS website or your state’s tax board to set one up. The balance still accrues interest and penalty fees until you finish the payments. But if you make three consecutive payments, you can request that the IRS remove the lien from public record. 

You can apply for a payment plan online, whether it’s federal or state tax debt. Depending on your debt and income level, payment plan fees range from $0 to $225.

Offer in compromise

The IRS and most state tax boards allow offers in compromise, which is a request to settle your tax debt for less than you owe. There’s no guarantee that the tax agency will accept your request. But it might be worth a try if you’ve filed all your tax returns and made estimated tax payments for the year. 

If the tax agency accepts your offer in compromise, you must repay the debt as a lump sum within five months or on a payment plan within 24 months. 

Bankruptcy

If you can’t repay your state tax debt, bankruptcy is an option, but it has long-term consequences like poor credit. Chapter 13 bankruptcy is the most common type for individuals. If successful, it can discharge your state tax debt after you complete a payment plan. 

To qualify, you must file your tax returns for the previous four years and pay taxes while the case is ongoing. In other words, the state government will continue to levy your assets until the case is complete. Federal tax debt is not usually eligible for forgiveness through bankruptcy. 

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

Tax levies are not always accurate. You can file an appeal if there’s a tax levy against your assets and you disagree with the tax bill. The process varies depending on when you file the request and whether it’s for federal or state taxes. Here’s what you can expect. 

Request an appeal

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

CDP requires that you send the appeal form within 30 days, and the levy will stop while the IRS reviews it. CAP is typically a faster process and starts with a phone call with a collections manager before you file an official appeal. 

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

How long does it take to remove a tax levy?

The timeline for removing a tax levy depends on the approach you take. Paying in full is the quickest way to remove a levy — once you pay, the IRS releases the levy within 30 days. Other options can take multiple months, and the timeline can increase as the process continues. 

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)

Are there any differences between stopping an IRS or state tax levy?

There are two main differences between stopping an IRS or state levy—the agency you work with and whether you can file for bankruptcy. 

If you’re dealing with a levy for federal taxes, you work with the IRS to resolve the balance. You’ll work with your state tax board if you have a levy for unpaid state taxes. 

You can file an appeal, pay in full, ask for a payment plan, or request an offer in compromise for state and federal levies. Bankruptcy, however, does not usually discharge federal tax debt.

Does the IRS file one tax levy for all assets or one levy per asset?

Once you receive a notice, the agency can levy any asset or account. You will not receive individual notifications for each account. Instead, you will receive one notice of Third Party Contact informing you that the agency intends to contact companies or organizations with access to your money. 

The IRS or state government can then access your money in bank accounts, retirement accounts, property, and other assets. 

Are there added fees to your tax bill for a tax levy?

There aren’t any specific fees for a tax levy, but you have to pay interest and late penalties. Taxpayers must pay interest and late penalty fees whenever a tax payment is past due — not just when a levy occurs. 

The failure-to-pay penalty is a 0.5% charge for each month a tax bill is unpaid, up to 25%. If you receive a notice of intent to levy and don’t pay your statement within 10 days, the rate increases to 1%. Interest charges are 7% for unpaid tax bill balances, which compound daily and add up quickly. 

Some repayment programs charge setup fees as well. For example, you must pay a $205 nonrefundable application fee if you request an offer in compromise. 

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 funds in full. 

If you do not have enough money to cover the amount you owe, you could face bank overdraft charges, insufficient funds charges, and other fees from your financial institutions. Because of that, levies can make it challenging to manage your daily spending and monthly bills. 

Even though a levy is not part of your public record, the Notice of Federal Tax Lien document is public, which means credit agencies can find the document and add it to your credit report. It cannot negatively impact your credit score, but lenders can view it.

How can I avoid a tax levy in the future?

The best way to avoid a tax levy is to file yearly taxes. If you owe money when you file, make the payments before the due date. If you can’t make the payments, contact the IRS or your state tax authorities to request a payment plan. 

Tax levies are a last resort for government and state tax authorities. In most instances, the agencies want to find a solution that works for both parties.

Who to contact for help stopping a tax levy

Dealing with the IRS or state tax authorities can be complicated and confusing, especially when your assets are at risk of seizure. If you need help stopping a levy, you can contact the IRS, your state tax board, or a professional tax relief company. 

• Contact TAS: The Taxpayer Advocate Service (TAS) is an independent agency within the IRS, and its sole focus is to assist taxpayers and ensure that they understand their rights. If you are experiencing financial hardship due to a tax levy, call TAS at 877-777-4778 or contact your local office. 
• Work with a tax relief company: If you need professional help navigating a levy or applying to stop one, you can work with a tax relief company. These private companies act on your behalf by handling the logistics and advising you throughout the process.
• Connect with your state tax board: If you have a levy due to unpaid state taxes, you can work with your state’s taxpayer advocate organization. Like TAS with the IRS, each state offers free advocacy, which can help if you’re experiencing financial hardship due to a levy. 

FAQ

Can the IRS take all of 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 is causing 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 is causing immediate economic hardship.