This question was answered by Taylor, CPAI, Deduction’s AI tax accountant, and Deduction’s licensed CPAs.
A tax levy on your paycheck means the IRS is legally seizing a portion of your wages to pay an unpaid tax debt. This is one of the most serious collection actions the IRS can take, and it occurs only after the IRS has sent you multiple notices and you haven't responded or made arrangements to pay.
A wage levy doesn't happen without warning. According to IRS Topic No. 201 and Publication 594, the IRS must follow a specific collection process before issuing a levy:
After you file a return with a balance due (or the IRS assesses taxes you owe), the IRS sends you a bill. Along with this bill, the IRS automatically sends Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process.
If you don't pay or respond, the IRS sends additional notices. These typically include:
Before the IRS can levy your wages, bank accounts, or other property, it must send you a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. This notice gives you the right to request a Collection Due Process (CDP) hearing before the levy is issued.
These final notices include:
According to the Taxpayer Advocate Service, this notice is required by IRC Section 6331 before the IRS issues a levy, unless collection is in jeopardy.
If you don't respond to the Final Notice within 30 days, the IRS can issue a levy. Your employer receives Form 668-W (ICS) or Form 668-W (ACS), Notice of Levy on Wages, Salary and Other Income.
The IRS cannot take your entire paycheck. Part of your wages is exempt from levy and will be paid to you. According to the IRS, the exempt amount is based on:
The IRS mails Publication 1494 with the levy, which explains to your employer how to determine the exempt amount.
Important: Your employer will provide you with a Statement of Dependents and Filing Status to complete and return within three days. If you don't return this statement within three days, your exempt amount is figured as if you are married filing separately with zero dependents, meaning the IRS will take a much larger portion of your paycheck.
Call the IRS at the phone number shown on your levy notice or at 800-829-1040. According to the IRS, service is available from 7 a.m. to 7 p.m. local time, Monday through Friday. Have your notice and financial records available when you call.
Return this form to your employer within three days to ensure the correct exempt amount is calculated.
The IRS provides several ways to resolve your tax debt:
According to the IRS, the levy may be released if:
If the levy is causing immediate economic hardship, contact the IRS immediately. According to the IRS, if a wage levy is creating an immediate economic hardship, the levy must be released.
An economic hardship occurs when the IRS determines the levy prevents you from meeting basic, reasonable living expenses. The IRS will usually need you to provide financial information, so be prepared to share details about your income, expenses, and assets when you call.
Important: A levy release does not mean you don't have to pay the balance. You must still make arrangements with the IRS to resolve your tax debt, or a levy may be reissued.
You have the right to challenge a levy through the IRS appeals process:
If you received a Final Notice of Intent to Levy (LT11, Letter 1058, CP90, or CP297), you have 30 days from the date of the notice to request a CDP hearing by filing Form 12153, Request for a Collection Due Process or Equivalent Hearing.
According to the IRS, at a CDP hearing you can:
Filing a timely CDP hearing request protects your right to petition the U.S. Tax Court if you disagree with the Appeals decision.
If you miss the 30-day deadline, you can request an Equivalent Hearing within one year from the date of the CDP notice. However, you cannot petition Tax Court if you disagree with the Appeals decision.
You can also request an appeal through the Collection Appeals Program (CAP) by filing Form 9423, Collection Appeals Request. Unlike a CDP hearing, you cannot seek Tax Court review of a CAP decision.
According to IRS Publication 594, certain property cannot be levied. Exempt property includes:
According to the IRS, you can avoid a levy by:
Sources:
IRS: Levy
IRS: Information About Wage Levies
IRS Topic No. 201, The Collection Process – Overview of collection actions
IRS: How Do I Avoid a Levy? – Steps to prevent levy action
The information provided does not, and is not intended to, constitute legal advice.
