A state tax levy is a collection method that tax authorities use. A tax levy itself is a legal means of seizing taxpayer assets in lieu of previous taxes owed. A tax levy is not the same as a tax lien. A tax lien is a claim on what you own but a levy goes a step further to seize these assets. The tax levy can be placed on your bank accounts, wages, social security, investment accounts, and your physical properties.
State Tax Levy Process
The state authorities and the IRS are required to go through some appropriate steps before implementing a levy. This ensures that a taxpayer is properly informed of his tax debts and the levy that will be implemented if it is not paid.
For starters, the IRS will assess the tax amount you owe. This is done when you file a tax return stating the money you owe or the IRS will do so for you. This is called a substitute for return (SFR).
The next step is the sending of a tax bill to your most recent address. The bill will demand the payment for the taxes you owe.
If you don’t pay the tax bill or make an arrangement to pay with time then the IRS will send a Final Notice of Intent to Levy and Notice of Your Right to A Hearing. 30 days after notifying the taxpayer of intent to levy, the IRS or state authorities can then go ahead and begin the seizure of assets.
Types of State Tax Levy
There are various types of tax levies that apply to different taxpayers. The state authorities usually go for the method that’s easiest to seize your assets.
- State Tax Levy on Bank Account (Bank Levy): The IRS will get in touch with your bank and ask them to freeze funds in your bank account for the time being. 21 days after this they will remove the amount you owe from your bank account funds if they are enough to cover. If your funds are not enough to cover your debt the IRS will be entitled to future funds you put into that bank account and will deduct them as they enter.
- State Property Tax Levy: This involves the seizure of your property and physical assets so the IRS can sell them to cover your tax debt. They are entitled to seize and sell anything from your cars to your house(s), boats, furniture and more.
- State Tax Levy on Wages: In wage garnishment, the IRS will reach an agreement with your employer to put a tax levy on your wages to deduct a certain amount or percentage from your wages to pay your tax debt. Employers can be held liable for the debt if they refuse to heed to the IRS demands. The levy will continue until the tax and other fees are paid in full or the statute of limitations on the debt expires.
- State Tax Levy 1099: This is a form of state levy that is issued in some states that entitled the IRS to levy your 1099 payments. The state authorities can levy every amount you are owed currently but cannot touch any future payments you will get.
- Passport seizures: If you owe $50,000 or more, the IRS can ask the state department to revoke your passport. This is, however, a rare type of levy.
- Seizure of other assets: The IRS is also entitled to seize assets like life insurance, dividends, retirement accounts, commissions, and more.
How to Stop a State Tax Levy?
A state tax levy is the last course of action the IRS or state authorities will take but it is the harshest. To stop a state tax levy, you will need to act quickly. The first step is to get a tax attorney or a tax lawyer to arrange a tax debt relief for you. Don’t try to handle a tax levy on your own. Tax professionals have a higher success rate to negotiate with the IRS and make an arrangement to stop the tax levy. Some possible arrangement options include:
- Starting a payment plan: there are payment plans state taxing authorities offer. You can choose a plan to suit your current financial situation. Once you start a payment plan, the IRS will stop the levy.
- Submit a counteroffer: Your tax lawyer can submit an offer in compromise to the IRS. This offer will request that you pay less than the amount you owe in taxes. This option is available only to individuals that are financially challenged. Get in touch with a tax professional to determine if you qualify for this option.
- Provide evidence of financial difficulties: If you can prove to the IRS that you are truly financially incapable of paying your taxes, the levy could be halted temporarily. This is especially applicable to wage garnishment. If your tax attorney can provide evidence of financial difficulties to the IRS, the amount can be lowered or canceled. Eventually, however, you will have to find a way to resolve the taxes you owe.
- File an appeal: You can file an appeal on a levy for several reasons:
- You applied for bankruptcy before the levy was issued.
- The statute of limitations on the debt is expired.
- You paid all your tax debt before the notice was sent.
- There were errors in the procedure during the assessment of your taxes.
- You did not get the chance to discuss your liability.
- Other reasons include spousal defense and discussing other collection methods.
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