An IRS levy notice may seem like the end of the world. You may feel like you have no choice but to let the IRS levy your bank account. On top of that, because it’s a potentially embarrassing issue, you probably won’t want to tell anyone about it.
Believe it or not, you’re not alone. There are about half a million levies by the IRS. The potentially good news is that the IRS levies were down 32% in 2017 from the year earlier.
Would you like to learn what a levy is and how you can stop them? Read on to find out.
What Is an IRS Levy?
The IRS can legally take money from you. That sounds unfair, but they probably have spent months trying to get you to pay an overdue tax bill.
A levy can come in one of two forms. There’s a bank levy, where the IRS can seize your bank accounts to collect a debt. The IRS will freeze the funds in your account, and then after 21 days, those funds will go to the IRS. Your bank may also charge you an IRS levy processing fee to rub salt in the wound.
The IRS can also garnish your wages, which means that a certain amount of your paycheck goes right to the IRS. Your employer is notified of the levy, and they have to comply, putting you in an embarrassing situation.
There’s also a tax lien, which the IRS places on property, such as a home or car. If you owe payments on your home or car, the IRS will file a Notice of Federal Tax Lien. That essentially pushes the IRS to the front of the line ahead of your other creditors.
All of this can be exhausting and stressful to think about. It will be hard to get a good night’s sleep, but it’s the one thing you can do give yourself the energy you need to deal with this.
Does a Levy Impact Your Credit?
One question that’s asked a lot is whether or not an IRS levy can impact your credit score. Technically, a levy is not reported on your credit report the same way a missed payment is.
Levies are not reported to credit reporting agencies, but having a levy on your account could cause you to miss other payments.
If a lien is filed, that Notice of Federal Tax Lien will appear on the public record portion of your credit report.
How the IRS Collects Past Due Taxes
You may have received notice that there will be a levy on your bank account. That just didn’t happen out of nowhere.
The IRS has a collections process that it takes to collect back taxes. If you filed a tax extension and you owe taxes, you still have to pay those taxes by April 15. Any taxes not paid by April 15 is considered delinquent.
The IRS will send a series of letters to you. Each one will ask for full payment up front with a payment deadline. If you do not respond, the IRS will eventually send a Notice of Intent to Levy. That’s known as CP504.
This doesn’t mean that they will, but if you don’t respond, they intend to do so.
If you still don’t resolve the issue, your next letter is LT 11. This means that they will levy your account and you have 30 days to respond.
How to Prevent an IRS Levy
There are a few things that you can do to prevent an IRS levy. That starts with being on-time with your taxes. If you work for a company, talk to your HR department and make sure that the right amount of taxes are withheld from your paycheck.
If you own your own business or are self-employed, then you must pay estimated taxes if you are going to owe more than $1,000.
If you still owe money to the IRS, you call them to set up a payment plan if you can’t pay the entire amount. If you default on that payment plan, you will reenter the collections process.
Most of the time, the IRS is willing to work with you. You can’t ignore those letters. You have to pick up the phone and call them.
What Do You Do if You Get an LT 11 Form?
In the worst case scenario, you get an LT 11 notice. What do you do? You can’t leave the country.
You can call the IRS to resolve the issue or go on a payment plan. Chances are you don’t want to deal with the IRS on this matter.
What you can do is enlist the help of someone who has experience helping people navigate the IRS before a bank levy happens. You can learn more about that here.
The firm that you have helping you out may recommend economic hardship or an offer in compromise. Both require a lot of forms and documentation to prove your case.
With the offer in compromise, you make an offer to the IRS to pay less than the amount owed. This isn’t the “pennies on the dollar” offer that you see on TV. You have to make a real offer on the money you owe.
Stay Sane and Keep the IRS Off Your Back
There’s nothing more intimidating than getting certified letters from the IRS. It’s a panic-inducing thing to deal with and can completely overwhelm you.
When you start to receive those collections letters from the IRS, it’s best to deal with them immediately. Call them and let them know what your situation is. They can be very understanding and will want to work with you.
If you get to the point where you face an IRS levy, you better bring in the experts. If you try to go at it alone, you’re risking whatever funds you have in your bank account.
Dealing with debt is rarely fun. Take a look at this article with smart tips to help you deal with debt.