Dealing with an IRS levy can be incredibly stressful, especially when it creates a significant financial hardship. A levy allows the IRS to legally seize your assets—such as wages, bank accounts, and other property—to satisfy a tax debt. If this action is making it difficult to cover basic living expenses, it’s important to understand your options for relief.
This guide explains IRS levies, financial hardship, what assets the IRS can levy, and how to respond if you are facing collection actions.
IRS Levies
An IRS levy is a legal action that allows the IRS to seize your property to collect unpaid tax debt. This can include taking money directly from your wages, withdrawing funds from your bank account, or seizing other valuable assets. A levy is one of the most serious collection tools the IRS uses and typically occurs after multiple attempts to collect the debt through notices and warnings.
Unlike a tax lien, which is a claim against your property, a levy is an actual seizure of assets. This means the IRS is actively taking money or property to satisfy what you owe.
Financial Hardship
Financial hardship occurs when paying your tax debt—or having your assets seized by the IRS—prevents you from meeting basic living expenses. These essential expenses typically include housing, utilities, food, transportation, and medical care.
The IRS evaluates hardship based on your ability to maintain a basic standard of living. If a levy leaves you unable to afford these necessities, you may qualify for relief options such as a levy release, installment agreement, or temporary suspension of collection activity.
What Assets Can the IRS Levy?
The IRS has broad authority to collect unpaid taxes and may target wages by garnishing a portion of your paycheck before you receive it. Bank accounts can also be frozen and funds withdrawn directly to satisfy your debt. In some cases, the IRS can levy Social Security benefits through the Federal Payment Levy Program, generally up to 15% of each payment.
Retirement accounts such as IRAs and certain pensions may also be subject to levy. For self-employed individuals or business owners, the IRS can seize business income, accounts receivable, and physical assets such as equipment or inventory.
In more severe cases, the IRS may seize real estate or vehicles and sell them to recover unpaid taxes. Because of the wide scope of assets that can be affected, IRS levies can quickly create serious financial disruption.
What Is a Bank Levy and How Does It Work?
A bank levy allows the IRS to take money directly from your bank account to cover unpaid tax debt. When a levy is issued, your bank is required to freeze the funds in your account for 21 days. During this time, the money is held but not yet sent to the IRS, giving you a short window to take action.
A key detail is that a bank levy only captures the funds available in your account at the time the levy is processed. However, if your tax debt is not resolved, the IRS can issue additional levies in the future to capture new deposits.
The 21-day hold period is critical because it gives taxpayers an opportunity to request a levy release, set up a payment plan, or submit documentation showing financial hardship. Once the 21 days pass, the bank must send the funds to the IRS.
When an IRS Levy Causes Financial Hardship
An IRS levy can quickly drain your finances and make it difficult to cover basic living expenses. If your wages or bank accounts are being garnished, you may struggle to pay rent, utilities, groceries, or medical costs.
The IRS considers a levy to cause hardship when it prevents you from meeting necessary living expenses based on its Collection Financial Standards. These standards evaluate reasonable costs for housing, food, transportation, and healthcare.
For example, if a levy takes funds that would otherwise be used for rent or mortgage payments, or leaves you unable to afford essential medications, it may qualify as a financial hardship situation. In these cases, you may be eligible for relief options.
Examples of Hardship Situations
A levy may qualify as a hardship if it prevents you from affording housing expenses such as rent or mortgage payments, placing you at risk of eviction or foreclosure. It may also qualify if you cannot pay utility bills like electricity, water, or heating.
Other examples include being unable to purchase food or groceries, pay for necessary medical care or prescriptions, or cover transportation costs needed to work. Childcare or child support obligations may also be affected if your income is reduced due to a levy.
How to Request a Levy Release Due to Hardship
If your IRS levy is causing financial hardship, you can request a levy release.
The first step is to contact the IRS immediately using the phone number on your levy notice. You will need to explain your financial situation and request a release due to immediate economic hardship.
Next, you must provide financial documentation. This typically includes Form 433-A along with supporting documents such as pay stubs, bank statements, rent or mortgage statements, utility bills, and medical expenses. These documents help the IRS evaluate your ability to meet basic living costs.
Once submitted, the IRS will review your financial situation. If approved, the levy may be released and collection activity paused. However, the tax debt itself is not eliminated, and the IRS may require a payment plan or other resolution afterward.
When the IRS Cannot Levy
There are certain situations where the IRS is not allowed to issue or continue a levy. These include cases where a taxpayer is in active bankruptcy proceedings, has an approved installment agreement, or has a pending Offer in Compromise under review.
A levy is also generally paused if a taxpayer has timely requested a Collection Due Process hearing within the required 30-day window after receiving a final notice. These protections can temporarily stop collection actions while the case is being reviewed.
Other Tax Relief Options
If you are facing an IRS levy, there are additional tax relief options that may help resolve your situation.
An Offer in Compromise allows eligible taxpayers to settle their tax debt for less than the full amount owed if the IRS determines they cannot reasonably pay the full balance. This requires detailed financial disclosure and approval from the IRS.
Installment agreements allow taxpayers to pay their debt over time through monthly payments. These agreements can help stop levies and prevent future collection actions while keeping accounts in good standing.
Depending on your financial situation, these options may help reduce or eliminate the immediate impact of IRS enforcement actions.
FAQs
What is an IRS levy?
An IRS levy is a legal action that allows the IRS to seize your wages, bank accounts, or property to collect unpaid tax debt.
What is financial hardship?
Financial hardship occurs when paying your tax debt or losing income due to a levy prevents you from covering essential living expenses such as housing, food, utilities, and medical care.
What assets can the IRS levy?
The IRS can levy wages, bank accounts, Social Security benefits, retirement accounts, business income, and in some cases, real estate or vehicles.
What is a bank levy?
A bank levy is when the IRS freezes and withdraws money directly from your bank account to satisfy unpaid tax debt, typically after a 21-day holding period.
Final Thoughts
An IRS levy can create immediate financial pressure, especially when it impacts your ability to pay for essential living expenses. Understanding what an IRS levy is, what is financial hardship, and what assets the IRS can levy can help you take informed action quickly.
If you are facing a levy, responding early is critical. Options such as levy release requests, installment agreements, and other tax relief programs may help you regain financial stability and stop further collection activity.