When taxpayers owe back taxes, the IRS has powerful collection tools—liens and levies. While often confused, these are distinct collection mechanisms with different effects. Understanding how each works helps you protect your assets and respond appropriately.

What Is a Tax Lien?

A federal tax lien is a legal claim against all your property—current and future—securing payment of your tax debt. The lien arises automatically when you fail to pay taxes after the IRS sends a demand. It attaches to everything you own: real estate, vehicles, bank accounts, and other assets.

A lien doesn't seize your property—it protects the government's interest by ensuring they'll be paid when property is sold or refinanced.

Notice of Federal Tax Lien

When the IRS files a Notice of Federal Tax Lien (NFTL) with your county recorder or secretary of state, the lien becomes public record. This public filing alerts creditors, damages your credit, and can prevent you from selling or refinancing property.

The IRS must send you a notice before filing the NFTL, giving you opportunity to pay or arrange payment. Once filed, the lien appears on credit reports and can drop your credit score significantly.

What Is a Levy?

A levy is the actual seizure of your property to satisfy tax debt. While a lien secures the debt, a levy takes your assets. The IRS can levy bank accounts, wages, retirement accounts, rental income, accounts receivable, and even your house.

Levies are more aggressive than liens—they actively remove money or property from your control.

Bank Account Levies

When the IRS levies a bank account, they send a notice to your bank, which must freeze the amount owed and hold it for 21 days before sending it to the IRS. During those 21 days, you can negotiate or challenge the levy.

The levy captures funds in the account at the time of the notice. Future deposits aren't automatically seized—the IRS must issue new levies. However, multiple levies can be issued.

Wage Garnishment

IRS wage levies differ from most garnishments because they continue until released. The IRS can take a substantial portion of each paycheck—leaving only a protected amount based on filing status and dependents.

Unlike bank levies (one-time seizures), wage levies are ongoing. Your employer continues withholding until you resolve the tax debt or the IRS releases the levy.

Property Seizure

The IRS can seize and sell real estate, vehicles, and other property. Property seizures are relatively rare because they're administratively burdensome and often don't recover much. But the threat is real for valuable assets.

Before seizing property, the IRS must provide notice and opportunity to request a hearing.

Your Rights Before Levies

The IRS cannot levy without first sending a Final Notice of Intent to Levy at least 30 days before the levy. This notice is your warning—use this time to pay, set up a payment plan, or request a collection due process hearing.

You have the right to a Collection Due Process (CDP) hearing to challenge the levy or propose alternatives. Requesting a hearing within 30 days prevents the levy while your case is considered.

Releasing Liens and Levies

Liens are released when you pay the full debt, enter an installment agreement (in some cases), or the collection period expires (generally 10 years). You can also request lien withdrawal in certain circumstances.

Levies can be released if you pay the debt, establish an installment agreement, the levy causes economic hardship, the collection period expires, or releasing would help tax collection (for example, you can't work if your car is seized).

Challenging IRS Collection Actions

You can challenge liens and levies through CDP hearings, requesting the IRS reconsider its actions. You can also sue in Tax Court if you disagree with the hearing outcome. Grounds for challenge include procedural errors, inappropriate collection actions, and availability of less intrusive alternatives.

Protection Strategies

Don't ignore IRS notices—responding early provides more options. Consider installment agreements, offers in compromise, or currently-not-collectible status before levies occur. If levies happen, act quickly during the 21-day bank freeze or request emergency levy release.

Getting Legal Help

Tax attorneys and enrolled agents specialize in resolving IRS collection issues. They can negotiate payment plans, challenge improper levies, and protect assets from seizure. Professional help often achieves better outcomes than facing the IRS alone.