Two common collective actions taken by the IRS are a bank levy and wage garnishment. Because they both target sources of your income, it is easy to confuse the two. You may also find yourself facing similar financial difficulties under both events, including struggling to pay for your monthly expenses. Although they both limit your ability to pay your bills, there are important differences about which you need to know.
What is Wage Garnishment
Wage garnishment is a special type of levy on your wages or salary. The IRS leaves you a certain amount of money they deem as exempt from the garnishment based on your filing status and exemptions. They take the rest of the money from each paycheck until you have paid your debt in full. Typically, the exempt amount with which you are left does not cover all your regular monthly expenses. The IRS works directly with your employer on the wage.
What is a Levy on a Bank Account?
A levy on one or more of your bank accounts, also know as freezing your account, is another common collective action. When your account is frozen, you cannot do anything with the account, including withdraw money, pay bills, or transfer funds. Your account may be partially or fully frozen, depending on how much you owe and how much you have in your account. Most likely, you will not wish to add any deposits to the account, as this will then freeze those funds as well.
The IRS will take some or all of the money in your account to pay off your federal tax debt. Your funds will remain frozen until you have claimed an exemption to receive a portion of your money or fulfill your tax liability. A bank levy can happen on any and all of your bank accounts, including overseas accounts, until your debt is paid in full. If the funds in your account cannot cover the unpaid taxes, then you may also be subject to an IRS wage garnishment.
The Difference Between a Bank Levy and IRS Wage Garnishment
The biggest difference between the two types of levies is the asset from which the IRS draws the funds to apply towards your tax liability. A wage garnishment is applied to your main source of income, while a bank levy is enacted on the money you already have, such as your savings. Both will remain in place until you have paid off your tax debt in full or you have negotiated a tax settlement.
You have several choices for stopping a wage garnishment, bank levy, or other collection action by the IRS. You can pay off your federal tax debt, sign up for an Installment Agreement, apply for Currently Not Collectible status, or extend an Offer in Compromise. Working with the Tax Professionals at Fidelity Tax Relief can help you discover the best resolution for your tax debt. Call us today at 877-372-2520.