Having an IRS tax levy can have a far reaching impact on your current and future financial situation. If you have received a notice from the IRS that they intend to impose a tax levy on your property, then you need to take action. Otherwise, you may find yourself subject to some of the following consequences.
Not paying your tax debt does not automatically harm your credit score. However, once the IRS placed a lien and then a levy on your property, it becomes public record that will affect your ability to get credit in the future. When other creditors see a levy in your history, they will see you as a potentially risky borrower. This could mean that you have a higher interest rate and tougher terms on any future credit, as long as the tax levy remains in your credit report. You may also find it difficult to be approved for any lines of credit, including a mortgage or car loan.
Difficulty to Pay your Bills
A tax levy can take away many sources of your income, not just your property. The IRS can impose a tax levy on your bank account and wages, taking as much as they need to cover your tax liability, other than a small exempt amount. The IRS has determined a minimum amount necessary for living expenses based upon your filling status and deductions. However, this amount is typically much lower than what you are used to having at your disposal to pay all your normal bills. This could cause you to defunct on other debt or miss other important payments. This could cause more credit action to be taken against you.
Hurting your Financial Future
Not only can the tax levy put you in a financial hardship right away, it can also hurt your financial future, and not just because it will decrease your chance of getting credit. It might also take away some of the funds on which you were relying to retire. The IRS can levy your retirement accounts, investment properties, rental income, and other assets. This can reduce the amount you will have for your retirement in the future, placing you in a financial hardship once you reach this period in your life.
How To Prevent These Consequences
You can prevent these problems by removing the tax levy against your property. The IRS typically imposes a levy after a tax lien, with at least a 30 days notice. If you take action right away, you can stop the tax levy from happening. Even if you miss this window, you can get it removed. The best way to do this is by paying off your federal tax debt. If you are unable to do this, you can apply for an Offer in Compromise or Installment Agreement. By working with tax professionals, you can find the optimal way to settle your tax debt and get your tax levy removed from your account so that you do not hurt your financial future.