Today, Optima Tax Relief’s Lead Tax Attorney, Phil Hwang, discusses levies and garnishments, including which assets the IRS can seize and how the IRS can garnish your wages.
A levy is a legal seizure against your assets that results from owing back taxes. The IRS can seize just about anything you own, including property, bank accounts, retirement accounts, some life insurance policies, and even wages. How much of your wages the IRS levies depends on a few factors, such as your filing status, the number of dependents you claim, and how often you receive a paycheck.
Unfortunately, the IRS has full discretion on how much of your paycheck they will garnish. However, the IRS can typically only garnish your disposable income each month over the exempt amount according to your standard deduction. For example, single filers have a standard deduction of $13,850 in 2023. If a single filer with no dependents gets paid weekly, their take home pay after the wage garnishment would be about $266 ($13,850 divided by 52 weeks). If you have dependents, or use a higher standard deduction, this amount will increase.
Most taxpayers who have levies just want to know how to get them removed. The simplest and most obvious answer is to pay the tax liability in full. If this isn’t an option, the next best thing to do is to set up an installment agreement with the IRS or try to claim economic hardship. Whatever your next move is, taking swift action is crucial and having a team of tax professionals in your corner can help ease the process.
Don’t miss next week’s episode where Phil will discuss tax scams. See you next Friday!
It can be difficult and frustrating to deal with tax debt. You might be concerned about whether the Internal Revenue Service (IRS) has the right to seize your assets if you owe taxes to them and haven’t taken steps to address the debt. In this article, we will examine the scenarios in which the IRS may lawfully seize your assets to satisfy a tax liability and when they may not.
Can the IRS Seize My Assets?
The simple answer to this question is yes, the IRS is legally able to seize your assets in order to pay off a tax balance you owe. However, it is crucial to remember that the IRS normally views asset seizure as a last resort. Before initiating asset seizure, they typically prefer to negotiate with taxpayers to identify other options, like installment agreements or offers in compromise. Additionally, the IRS will make multiple attempts to warn you of potential asset seizures. If you do not respond to these warnings, the next step would be to impose a tax lien on your property. Only after this and a final warning will the IRS seize any assets.
Which Assets Can the IRS Seize?
Almost any item that has worth or equity and may be sold for cash can be seized by the IRS. Some of these assets can include:
Property: The IRS can place a lien on your property, such as your house or other real estate, establishing their legal claim to it. In some situations, they may seize and sell the property to recover the debt.
Vehicles and Other Personal Assets: To satisfy your tax burden, the IRS may confiscate and sell your vehicles, boats, jewels, or other personal assets.
Bank Accounts: The IRS has the authority to levy funds from your bank accounts in order to satisfy your tax debt. Bank levies are one-time only, which means the IRS can only take what is in the bank account at the moment. You can deposit and withdraw funds from the account in the future. However, the IRS can always issue more levies in the future.
Retirement Accounts: The IRS has the legal authority to seize your 401(k) and other retirement savings, including self-employed plans. Although these accounts are shielded from creditors, the IRS has the legal right to confiscate funds from your retirement savings in order to recoup back taxes owed.
Life Insurance: In certain cases, the IRS can even seize life insurance benefits. If you are the beneficiary of a life insurance policy and you owe the IRS, the IRS can seize those proceeds. Additionally, if you have a life insurance policy with no beneficiary named and you owe the IRS, the IRS can seize the policy funds before they are distributed to your next of kin.
Wages: The IRS has the authority to issue a wage garnishment, which means that they can legally order your employer to withdraw a percentage of your salary to pay off your tax debt.
Which Assets Can the IRS Not Seize?
In general, any asset that is not necessary for your well-being and shelter (or the survival and shelter of your family) may be confiscated in order to pay the IRS what you owe. This can include:
Worker’s compensation benefits
Work tools needed for your job
Household furniture valued below a certain amount
Some disability payments
Court-ordered child support payments
Some pension or annuity benefits
Clothes and textbooks
Assistance provided by the Job Training Partnership Act
How Can I Protect My Assets from Being Seized by the IRS?
The good news is that an IRS asset seizure will never come as a surprise. Once you are aware that you owe the IRS, you should get to work on resolving the issue. However, we know that sometimes this isn’t always possible. You may have already received multiple IRS notices, and maybe one was an Intent to Levy. It’s not too late to get help from the nation’s leading tax resolution firm. Optima Tax Relief has over a decade of experience helping taxpayers with tough tax situations.