Why Is There a Levy on My Paycheck? How to Proceed

If you don’t pay your income taxes, the IRS will look for ways to take your income and property to fulfill the debt. One way it does this is by placing a levy on your paycheck. Levies allow the IRS to take what it needs to pay back taxes. 

This guide will explore how levies work and how to proceed.

Table of Contents

1. What does a tax levy on my paycheck mean?
2. Why do I have a tax levy on my paycheck?
3. How do I know if it’s a federal vs. state tax levy on my paycheck?
4. What’s the difference between tax levy and wage garnishment?
5. I have a tax levy on my paycheck: What do I do?
6. FAQ

What does a tax levy on my paycheck mean?

A tax levy on a paycheck means you must pay the IRS a portion of your paycheck. Wage garnishment is a type of levy that allows the IRS to collect some of the money from your paycheck. 

This scenario only happens if you are significantly behind on your income taxes and the IRS has no other option to have you catch up.

The IRS will continue to levy your paychecks until it fulfills one of these three conditions:

1. You pay off the debt
2. You make an arrangement with the IRS to pay overdue taxes
3. The levy is released

You may need to agree to a payment plan with the IRS to get rid of the levy before you have paid the debt in full. Quickly communicating with the IRS can lead to a prompt solution and free yourself from the levy. 

You also have the option to demonstrate an immediate economic hardship to get out of a levy. The IRS may back away from a levy in this scenario.

Why do I have a tax levy on my paycheck?

People get tax levies on their paychecks because they have fallen behind on their tax payments. If you forgot to file your taxes or aren’t keeping up, the IRS can take a portion of each paycheck until the debt is repaid. Levies also allow the IRS to seize assets, such as real estate and equities.

A tax levy on a paycheck makes it more predictable to anticipate how much you will receive each week, while the seizure of assets can lead to a greater sense of financial shock. Tax levies do not reduce your taxable income even though they are taken out of your paycheck. 

Tax levies can show up for various reasons, such as incomplete tax forms and miscalculations. You don’t have much room to negotiate once the agency begins applying levies to your paycheck. Employers are legally required to comply with the IRS on this issue. They are also obligated to notify their employee via writing about tax levies on their paycheck.

How do I know if it’s a federal vs. state tax levy on my paycheck?

Federal and state tax levies have a similar purpose. However, federal tax levies are initiated by the IRS, while your state tax authority initiates state tax levies. You will receive a notice in the mail about your levy. Check the sender to know whether it is a federal or state tax levy.

Note that you can end up with a federal levy and a state tax levy at the same time. You will then have a portion of each paycheck sent to the state and the IRS. The approach for stopping tax levies is similar on the federal and local levels. Communicating with the proper authority can help you get some relief, but you ultimately must pay off the debt over time. 

What’s the difference between tax levy and wage garnishment?

Wage garnishments are a type of tax levy that involves the IRS taking a portion of each paycheck to catch you up with back taxes. However, tax levies can cover additional ground, allowing the IRS and state authorities to seize bank account funds, stocks, and real estate, if necessary.

While tax authorities will go after your assets as a last resort, it’s a scenario that separates the broad scope of tax levies from the specific case of wage garnishments. Tax levies on your paycheck are a more common route, and tax authorities will keep at it until you pay off your debt, come up with a payment plan, or demonstrate immediate financial hardship. 

I have a tax levy on my paycheck: What do I do?

If you have a tax levy on your paycheck, it’s important to avoid panicking. Remaining calm throughout the process will make it more manageable. You can take these steps to address the issue.

If I have a client with a tax levy on their paycheck who can’t afford to pay their tax debt immediately, recommend that they set up a payment plan ASAP and begin making manageable payments right away. If they need additional guidance, they should consult a tax professional to develop a compliance-focused strategy for resolving the levy—one that ensures financial stability and avoids undue hardship.

1. Know who you need to communicate with

It’s straightforward to see who is levying your paycheck. You will receive mail notifying you about the levy, and you can see who sent it.

2. Pay off the debt

Paying off your back taxes is one of the best ways to stop a bank levy and paycheck levies. If you have the funds ready to go, it’s usually optimal to pursue this route. That way, the tax authorities will stop touching your paychecks, and interest will no longer accumulate on the debt.

3. Negotiate with the debt collector

You can negotiate a settlement or payment plan to get rid of a levy. This option can make back taxes more manageable and give you a path forward. 

4. File for bankruptcy

Filing for bankruptcy will not end your tax debt, but it puts a pause on tax levies. For instance, your wages cannot be garnished if you file for bankruptcy. It gives you a temporary reprieve, but it will also damage your credit score.

A bankruptcy can remain on your credit report for seven years, making it more difficult to take out loans in the future. You will need to rebuild your credit score to get better financing in the future. If you’re not worried about taking out loans anytime soon and are feeling significant financial pressure from levies, bankruptcy may be worth considering.

5. Work with a tax relief company

You may not need to navigate tax bills on your own. Working with a reputable tax relief company can simplify the process. These companies handle the communication for you and guide you along the process. They have experience with helping clients negotiate good deals and trimming their debt.

Anthem Tax Services is our team’s highest-rated tax relief firm. It offers a free consultation where you and the team discuss options and how to proceed. The company employs enrolled agents, tax attorneys, and case managers who negotiate on your behalf. 

Anthem provides a 100% money-back guarantee if you don’t save money or have your debt lowered. You’ll need at least $10,000 in tax debt to work with the company.

Some tax relief companies specialize in helping taxpayers with smaller debts. For example, Community Tax has a $7,500 minimum tax requirement, and TaxRise requires just $5,000 in debt. It’s wise to compare several of the best tax relief companies before choosing the right one. A good tax relief company can save you time and money. 

FAQ

How much can the IRS levy from your paycheck?

The IRS can garnish a significant portion of your wages, but it must leave you with a minimum amount based on your filing status and number of dependents. The exact amount exempt from garnishment follows IRS Publication 1494 guidelines. 

In many cases, the IRS can take most of your paycheck beyond this exempt amount, making it one of the most aggressive wage garnishments among creditors.

How long does a tax levy last?

A tax levy remains in effect until the IRS collects the full tax debt, releases the levy, or the statute of limitations on collection expires—typically 10 years from the date the IRS assessed the debt. You can stop a levy by paying the debt, setting up a payment plan, proving financial hardship, or negotiating an offer in compromise.

Can someone garnish your wages without you knowing?

No. Creditors, including the IRS, must notify you before garnishing your wages. The IRS sends multiple notices, including a Final Notice of Intent to Levy, giving you at least 30 days to respond or dispute the levy. Private creditors typically need a court judgment before garnishing wages, and you’ll receive legal notice before the process starts.