If the Internal Revenue Service (IRS) has sent notices of nonpayment to you, but has received no payment or response, it may take collection actions to recover the debt owed. Two of these collection actions are liens and levies. It’s important to understand the implications of an IRS tax lien vs. a tax levy and what you can do about each type of collection action.
The main difference between the two is that a tax lien is a claim on your property, which gives the agency collateral for unpaid debt. A tax levy is the actual seizure of property to cover your debt.
What Is an IRS Tax Lien?
An IRS tax lien is the IRS’s legal claim against your property to get you to repay the debt you owe. While the lien can lead to the property being seized, it doesn’t have to. Instead, taxpayers can take action to resolve or negotiate their debt with the IRS. The IRS holds the property as collateral to ensure the taxpayer meets their obligations.
Liens can be placed on your home, other real estate, financial assets, vehicles, or other personal property. In fiscal year 2024, the IRS filed 196,996 notices of federal tax liens.
What Is an IRS Tax Levy?
An IRS tax levy occurs when the IRS decides to seize property to cover some or all of the tax debt you owe. This property can include the funds in your bank account, the wages you earn, a home, vehicles, and other real estate. Certain types of levies begin with a lien first, like real property levies, but levies can also be implemented without a lien, like a bank levy.
When a bank levy is implemented, it freezes your bank account for a set period of time before removing any funds needed to repay your debt. In 2024, the IRS sent 313,792 requests to third parties for levies of property. This includes levies for wage garnishments, bank levies, and other property seizures. There were only 71 property seizures that year.
What Are the Key Differences Between a Lien and a Levy?
Liens and levies are collection actions used for different purposes, although both can be used to encourage taxpayers to repay their debts. Some important differences include:
- IRS goal: The IRS’s goal with a lien is to inform other creditors that the agency has first claim on the property with the lien, as well as to try to get the taxpayer to pay back the debt or negotiate with the agency. When the IRS begins the process of a levy, it intends mostly just to recover the debt it is owed. The levy also helps better encourage taxpayers to address their debt.
- Financial effect: As the taxpayer, you see a very different effect. A lien doesn’t result in immediate loss of your property, while a levy does. However, a lien can have numerous collateral financial consequences, including causing harm to your credit score, preventing you from refinancing assets, and increasing your risk of scams.
- Timing of the action: While both collection actions typically only occur after several bills are sent and ignored, they tend to happen at different points in the IRS collection process. A lien is more likely to occur in the early stages of collection. Levies tend to be a last resort for the IRS when it cannot recover your debt in other ways.
FAQs About IRS Tax Lien vs. Tax Levy: Key Differences for Florida Taxpayers
How Much Notice Does the IRS Give You Before It Places a Levy or Lien?
The IRS will give you notice in the form of several demands for payment before a lien is placed on your property or a levy notice is issued. A lien can be placed on your property after this. The IRS provides a notice of intent to levy at least 30 days before they levy the property. For bank levies, there is a 21-day waiting period where your account is frozen before the funds are removed.
How Do I Know if I Have a Tax Lien or Levy?
You will get a notice if you have a tax lien or levy placed by the IRS or the state agency, including several demands for payment, and then the notice of the agency’s intent to place a lien on or levy the property. If you have a tax lien or levy, you need to work with the tax agency to address your debt, including by paying it off in full or entering into a payment plan.
Is Florida a Tax Deed or Tax Lien State?
Florida offers both tax deeds and tax liens, which are a part of the same process of property seizure. When a creditor puts a tax lien on your property for an unpaid debt, the tax certificate for that property can be sold at an auction so the creditor can recover some of the debt you owe. When enough time has passed, the owner of the tax certificate can use it to get the tax deed, and therefore own the property.
What Comes First, a Lien or a Levy?
A lien generally comes first, as it places a claim on the property, and the levy occurs when the property is seized. However, there may be times when a levy is used on a bank account or your income, and a lien may not be used. Liens also do not always result in a levy, especially if you take steps to address your tax debt.
Hire a Tax Lien Lawyer and Bank Levy Lawyer in Florida
No matter which type of collection action you are facing, whether it is a bank levy, wage garnishment, or property lien, it is incredibly helpful to hire a tax lien lawyer in Orlando and an IRS collection action lawyer.
At TaxSmith, LLC, we know how to navigate numerous types of IRS collection activities and have years of experience with tax codes. We can help you respond to collection actions in a timely manner and assess whether you can make use of debt settlement options.
There are 18 IRS Taxpayer Assistance Center offices located throughout Florida, including one in Jacksonville, Tampa, and Fort Myers. These offices are useful for negotiating tax debt if you can’t repay it. Our firm can represent you in negotiations. Reach out to TaxSmith, LLC today.
