IRS Tax Lien vs Tax Levy: What Is the Difference and How Urgent Is Your Situation?

by Joshua Hanna

A tax lien is a legal claim against your property that the IRS places when taxes go unpaid, while a tax levy is an actual confiscation of assets to cover your tax balance. Think of a tax lien as a warning and the levy as an action.

While a tax lien lets you retain the ownership of your property, it attaches to all of your property and can affect your ability to refinance, borrow against, sell, or transfer your assets. With a tax levy, the IRS can garnish wages, freeze your bank account, and seize other assets.

Understanding the difference between a tax lien and a tax levy can help you know how to respond to the IRS notices, protect your assets, and resolve a tax situation before it escalates.

Talk to a professional about your situation and get help with IRS levies  

Key Takeaways

  • Tax lien – A legal claim against your property to secure payment for your tax debt.
  • Tax levy –  An actual seizure of your property as payment for your tax debt.
  • Final Notice of Intent to Levy –  The last notice you receive before the IRS seizes your assets to cover your tax debt. 
  • Options to stop or prevent a levy and lien: Paying the tax debt in full or exploring tax relief options such as OIC, CNC, and installment agreements.

What is an IRS Tax Lien?

An IRS tax lien is the government’s legal claim against your property and all rights to your property as permitted under federal law. A lien doesn’t mean that the IRS will confiscate your assets; it guarantees that whenever you refinance, transfer property, or sell, the IRS gets priority in payment. 

The agency must follow the IRS collection process before filing a tax lien on your property. Here is how a federal tax lien arises:

  • Tax assessment: The IRS calculates what you owe and documents your tax debt. 
  • Notice and Demand for Payment: You receive a notice detailing your tax debt, including any penalties and interest charges incurred, demanding payment.
  • Failure to pay: If you ignore the notice and demand for payment, or fail to make payment arrangements, the lien automatically attaches to your property. 

Having a tax lien comes with many shortcomings, such as:

  • It shows up in public records 
  • It can harm your credit and borrowing ability 
  • Complicates refinancing or selling the property without removing the lien first
  • It attaches to everything you own, including financial accounts, vehicles, and real estate.

What is an IRS Tax Levy?

An IRS tax levy is the actual seizure of your assets to satisfy a tax debt. While a lien is just a claim against your property, a levy involves the IRS actually taking that property. 

One of the common questions we get is whether the IRS can seize your property without notice. In very rare cases, yes, but usually it has to follow a legal procedure. The IRS has to send you a Final Notice of Intent to Levy along with the Notice of Your Right to a Hearing (Letter 1058 or LT11) before seizing any asset. 

After receiving this notice, you get 30 days to clear your debt, make payment arrangements, or ask for a Collection Due Process hearing. If no action is taken within 30 days, the IRS proceeds with the levy. 

Types of Levies

There are several types of levies the IRS may use to their benefit, including:

Bank Account Levy

The IRS can issue a letter to your bank and demand that it freeze the funds in your account at the time the notice is received, up to the amount you owe. Those funds remain unavailable to you for a short waiting period. If you fail to address the tax debt, the bank has to release the funds to the IRS after 21 days. 

Wage Garnishment

This ongoing levy allows the IRS to take a portion of your paycheck. How much they can take depends on the number of dependents you have and your filing status. The IRS will continue to levy your wages until your tax debt is paid off.

Social Security Levy

The IRS can levy 15% of your monthly Social Security benefit payment until your tax debt is paid in full. However, not all Social Security benefits can be levied, so you may want to discuss your specific benefits with a tax professional.

Physical Asset Seizure

In serious cases where other collection efforts have not yielded full payment, the IRS may seize actual physical assets. This may include vehicles, business equipment, or real estate. These seizures are significantly less common than bank levies and wage garnishment, but the IRS may go this route if it appears to be the most likely way to secure payment.

The Progression: How a Lien Leads to a Levy

While liens and levies are not the same, they are connected. Collection may escalate over time in these stages:

Stage What Happens What It Means
Stage 1 IRS assesses the tax and sends a bill The IRS is now demanding payment
Stage 2 IRS sends collection notices like CP14, CP501, and CP503 The account is moving through the collections process and each notice becomes more urgent
Stage 3 IRS files a Notice of Federal Tax Lien The IRS’s legal claim to your property is now public record
Stage 4 IRS sends a Final Notice of Intent to Levy, typically LT11 or Letter 1058 The IRS is taking the final step before levying your assets; they must wait 30 days after this notice is sent
Stage 5 IRS executes the levy IRS begins taking money, wages, tax refunds, or other property

Timing is everything when it comes to IRS notices. If you’re at stage 3, you still have a chance to resolve your tax debt and prevent a levy. At stage 4, you can still stop the levy, but the window is closing fast. 

At this late stage, we recommend speaking with a tax professional to determine the best way to resolve your IRS issue for the best outcome. 

What Does “Account is in Jeopardy of Lien or Levy” Mean?

Being “in jeopardy of lien or levy” simply means that your tax account is in danger (jeopardy) of the IRS filing a Notice of Federal Tax Lien against you (lien) or seizing your assets (levy). By the time the IRS uses this language, it has sent several IRS notices that you’ve ignored. 

Before the IRS places a lien or levy on your property, it tries to get you to voluntarily deal with your tax balance. But at this point, the IRS assumes that the delayed payments and ignored notices could mean reduced chances to collect the tax you owe before the collection period expires. To increase its collection odds, it starts preparing to seize assets.

However, there’s no need to panic; the IRS will still not levy your assets before it sends you a formal Notice of Intent to Levy, and allows you 30 days to make payment arrangements or file for a CDP. 

You still have a chance to prevent or reverse your levy at this stage. 

Which is Worse: a Lien or a Levy?

It’s all about timing; A levy is worse in the short term because it means the actual loss of money immediately, while a lien is worse in the long term, and it turns into a levy anyway if it remains unaddressed. 

For example, if the IRS levies your bank account, you lose access to the funds that were in the account (up to what you owe or all of it if it’s less than you owe) when the IRS sends the levy notice. 

On the other hand, while the lien doesn’t mean immediate seizure, it still does some damage. For example, liens are public records, which means all your creditors can access this information, which could make it harder to access loans. If you’re a business, suppliers might hold back on supplying you with their goods, affecting your business operations. 

Lien example: You owe the IRS $30,000 in taxes, and the IRS files a lien against your house. You can still keep your house, and the lien itself doesn’t give the IRS the right to seize your bank account funds. However, if you ever refinance or sell this house, the IRS will be paid first. 

Levy example: On the other hand, if you owe the IRS $30,000, the IRS sends the bank a levy notice about the tax debt. The bank will seize the full balance up to the amount owed. Say you have $20,000 in the account; the IRS will take all of that with a levy.

This is why, from a resolution standpoint, a lien is easier to address: you still have time to negotiate before collection enforcement begins.

Can You Stop a Levy After It Has Been Issued?

It may be possible to stop an IRS levy after it has been issued, but timing is crucial. Your options depend largely on whether the IRS has threatened a levy, issued a levy, or executed it already. 

Here are ways to prevent a levy:

If you’re dealing with an active levy – for example, your bank account is currently frozen or the IRS is actively garnishing your wages – you can get it stopped by proving financial hardship or that the levy was done in error. The IRS may stop the levy if you set up a payment plan that stipulates that the levy must be stopped, or if you get an offer in compromise accepted. 

In addition, if the Collection Statute Expiration Date (CSED) expires, the IRS will release any levy associated with that tax debt. 

How to Respond to Each Situation

Your next steps depend on what notice you’ve received and if the IRS has taken action:

  • You’ve received a Notice of Federal Tax Lien. You can look into tax relief options such as installment agreement, offer in compromise, currently not collectible status, or another resolution options to prevent the lien from escalating to a levy. You may also consider exploring alien withdrawal, release, or subordination.
  • The IRS sent LT11 or Letter 1058. Request a CDP hearing to temporarily stop the levy action and preserve your right to appeal the levy, make payment arrangements, or pay in full. Whatever you do, don’t miss the 30-day window. Since this is your final negotiation chance, it’s critical you consult a tax professional for the best outcome.  
  • A levy has already been executed: This means the IRS has already frozen your bank account or wage garnishment has begun. In this case, contacting the IRS immediately can help release a levy, especially if it’s an error or it’s causing you significant financial hardship. At this stage, negotiating with the IRS is much harder, and you’re better off letting a tax professional settle with the agency on your behalf. 

It’s easier to deal with a tax lien than a levy, but we can help you with both. Learn how Tax Network USA helps with IRS tax liens.

Frequently Asked Questions (FAQs)

Here are answers to the most common questions on IRS tax liens and tax levies:

What is a tax levy?

A tax levy is the actual seizure of your assets –  wages, bank funds, real estate, or any other property you own – to cover your tax debt. For example, if the IRS sends a levy notice to your bank, the bank has to freeze your funds up to the amount you owe, and you cannot access or withdraw the frozen funds. 

What is the main difference between a tax lien and a tax levy?

A tax lien is the government’s claim against your property; you still own and control the property. The lien only affects you when you want to transfer, refinance, or sell the property. On the other hand, a tax levy is an enforcement action, and it involves the IRS freezing your funds from a bank account, wage garnishment, or seizing other assets to cover what you owe. 

Does a tax lien affect credit?

Yes, but not by appearing on consumer creditor reports. A tax lien is public, and the creditors can see it by simply checking the public records. This can make some lenders hesitant to approve loans, mortgages, or other forms of credit. 

How long does a tax lien last?

A federal tax lien remains in effect until you pay the tax debt in full or the CSED expires. Otherwise, even if a taxpayer passes away and a loved one inherits a house with a lien, the lien remains. The IRS releases your lien within 30 days after paying your tax debt in full.  

How do I stop wage garnishment?

You can stop wage garnishment by exploring tax relief options such as OIC, installment agreements, or proving that the wage garnishment is causing you financial hardship.  

Can the IRS levy a joint bank account?

Yes. The IRS can levy a joint bank account as long as a taxpayer has a right to funds in the account. While the non-liable account holder can challenge the levy, the process of claiming the funds from the IRS is lengthy, complex, and tedious. If this is an option you’d like to pursue, consult with a tax professional first. 

Need Help With a Tax Lien or Tax Levy?

There are many drawbacks to both a tax lien and a tax levy. They might be different, but they can all hurt your finances. Instead of letting the IRS choose a fate for you, you’re better off taking action and finding your way back to compliance. 

This could mean an installment agreement to break down a large debt into manageable monthly payments, an OIC to pay less and get rid of the debt, or even applying for CNC status to pause collection actions temporarily.

At TNUSA, we can help you resolve your tax problems and negotiate payment options that align with your financial goals to ensure you don’t end up here again. All you need to do is call us on +1 855-225-1040.

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