Tax Lien vs Levy vs Garnishment: What are the Differences?  

A lien vs. levy? Levy vs. garnishment? Understanding the IRS’ various tax penalties and punishments for late fees can be difficult and disorienting, so let’s try straightening them out. First and foremost: liens and levies (of which a wage garnishment is a levy) are relatively nuclear options from the IRS’ point of view. These are collection actions the IRS resorts to when a taxpayer has proven unresponsive or unwilling to cooperate for months at a time, or when their debt has become unreasonably large.  

In a way, both liens and levies are threats – albeit threats that the IRS can and will act on. When the IRS announces the use of a lien or levy, you will have ample time to respond and even appeal against these judgments – or to organize a payment plan to deal with your debt before either a lien or a levy can be finalized against your tax account.  

Even if you aren’t in any trouble with the IRS, knowing the difference between a lien vs. levy, and a levy vs. garnishment is important for all taxpayers.  


Understanding a Tax Lien 

A tax lien is a public notice of the IRS or another state tax authority’s legal interest in your property, and security of their debt. In other words, when issuing a lien, the IRS is telling other current and would-be creditors that their debt and interest in your property supersede any other, and that any movement of your property (such as a sale) would require you to use the proceeds of that sale to first satisfy your debt to the IRS.  

A tax lien does not allow the IRS to simply take what is yours – but it does secure your debt to whatever you own and locks you down financially.  

Tax liens are established publicly – meaning, while you get a letter about your tax lien, it’s also a matter of public record. This is important for creditors looking into your financial status before issuing a loan, for example. Tax liens used to be a black mark on credit reports as well, but this hasn’t been the case since 2017. They can still be a terrible burden to carry – especially over long periods.  

On paper, the IRS will only release a tax lien when your debt has been completely paid off. There are options to modify your tax lien if you can convince the IRS that doing so would be in their best interest, by giving you enough financial flexibility to pay your debts. These modifications include a tax lien discharge (removing the lien from one piece of property), and a tax lien subordination (allowing a single creditor to supersede the IRS’ claim).  


Understanding a Levy 

On the topic of a lien vs. levy, a levy is where the IRS comes in and takes what you own, including (potentially) your sole home. Most of the time, however, the IRS won’t be that cruel – they start with your bank accounts, investment properties, or non-primary vehicles.  

If it’s an account, the IRS can seize and drain it. If it is an asset, like a property, the IRS puts it up on the market for its quick sale value and uses the proceeds to pay your debt – the remainder gets sent back to you, if anything remains.  

A tax levy is not a 24-hour process, especially when property is involved. The IRS must send out multiple notices before it can seize any of your property – as a rule, you have 30 days from the date on your final notice of a tax levy before the IRS takes anything. When levying a bank account, funds on the account are held for 21 days before being sent to the IRS.  

The period between the final notice and the levy itself is your last opportunity to work with the IRS to cancel the levy. Once the IRS goes through with the process, undoing it is much harder.  


Understanding Wage Garnishment 

A levy vs. garnishment is straightforward – whereas a levy allows the IRS to claim your property, wage garnishment is a wage levy, meaning the IRS claims a portion of your paycheck instead.  

Wage garnishment happens through your employer. When the IRS initiates wage garnishment, they send a notice to your employer to withhold a certain amount of money from each paycheck based on: 

  • What you owe 

  • What you earn 

  • Your filing status 

  • Your number of dependents  

Some taxpayers do not qualify for wage garnishment because they do not earn enough to have anything garnished by the IRS. If the IRS cannot find anything to garnish and cannot levy any assets, it may temporarily classify you as uncollectable, until your financial status improves.  


Avoiding and Resolving Tax Debts 

If you want to avoid a lien vs. levy, or a levy vs. garnishment, your best option is to pay and file your taxes on time. If you’re behind schedule, don’t worry – stay up to date on your current tax obligations (including any estimated payments if you’re self-employed), and get in touch with the IRS or a tax professional to resolve your current debt. The faster, the better – the IRS has penalties and charges interest on debts that remain unresolved.  

If you want to resolve an older debt, it’s important to note that the IRS does not accept any payments if you are missing any old tax returns. Be sure you’re up to date on all your returns and send in tax returns for old tax years that you’ve missed.  

It’s okay to ask for help. If you’re missing documents to help file your taxes from years gone by, you can either contact your employer or ask the IRS for transcript records. Unless you’ve never filed a tax return, you usually only need to be up to date on the last three years of returns, although the IRS can extend that requirement up to six years or longer in certain cases.  

In conclusion – if you’re caught between a lien vs. levy, or dealing with a levy vs. garnishment, it’s important to remember that all of them can be financially devastating and to keep in mind that a lien locks you out of accepting or negotiating other financing options. In contrast, a levy or garnishment allows the IRS to swoop in and claim what’s yours as their own.  

Neither is ever going to be a particularly attractive option – but it’s also worth noting that the oft undersold third option is a criminal charge 

The IRS doesn’t often persecute taxpayers for falling behind on their payments – it reserves that for serious examples of tax fraud or organized, large-scale tax evasion schemes – but the IRS can theoretically jail people for refusing to pay their tax debt in a timely fashion. If you’re worried about your taxes, it pays to work with professionals. We at Rush Tax Resolutions can help you put any liens or levies behind you and get back on the IRS’ good side.