Arizona Tax Law
Tax Garnishment and IRS Levy Relief
An IRS wage garnishment or bank levy can disrupt your finances and make it difficult to cover everyday expenses. Understanding the collection action, your rights, and the available resolution options can help you determine what to do next.
Call Carr Law Firm: (480) 568-6115What Is a Tax Garnishment?
A tax garnishment generally refers to money being taken from wages or other funds to satisfy unpaid taxes. For federal tax debts, the Internal Revenue Service (IRS) may use a collection action called a tax levy to reach wages, bank accounts, and certain other property. The Arizona Department of Revenue (ADOR) also has collection procedures for qualifying unpaid state tax liabilities.
The steps available to address a tax levy depend on who is collecting the debt, the type of tax involved, the stage of collection, and the taxpayer’s financial circumstances. A payment arrangement, an offer in compromise, an appeal, or a request to release a levy may be appropriate in some cases. Not every taxpayer qualifies for every option.
If your wages are being withheld or your bank has notified you of a tax levy, it is important to identify the agency involved and review the notices you have received before deciding how to respond.
How Tax Levies Affect Wages and Bank Accounts
Under federal law, the IRS may levy property or rights to property after following the applicable collection procedures. Depending on the circumstances, a levy can affect wages, bank deposits, certain retirement income, accounts receivable, or other property.
Wage levies and bank levies work differently. An IRS wage levy can generally continue against future wages until it is released or otherwise ends. For a typical IRS bank levy, the bank generally holds the levied funds for 21 days before sending them to the IRS, subject to applicable rules and exceptions. That period is not a universal 21-day deadline for every type of tax collection action.
Federal law governing IRS levies includes Internal Revenue Code Section 6331. The IRS also provides information about its tax levy authority and collection process.
Tax Lien vs. Tax Levy: What Is the Difference?
A tax lien and a tax levy are different collection tools. A lien is a legal claim against property that helps secure a tax debt. A levy is an action that takes property or funds to collect the debt.
This distinction matters because the steps for addressing a lien are not necessarily the same as the steps for stopping or releasing a levy. Paying a debt, establishing a qualifying payment arrangement, challenging a collection action, or requesting a lien withdrawal or release may have different requirements and consequences.
What to Do If You Receive a Tax Levy Notice
Do not assume that a notice is routine or that making a partial payment will automatically stop collection. Start by identifying the agency, the tax periods involved, the amount claimed, and any response or appeal instructions.
Review the notice
Keep the notice, prior correspondence, account statements, and any documents showing payments or disputes. Note the issuing agency and any deadlines stated in the documents.
Identify the collection action
Determine whether the issue involves wages, a bank account, another asset, a tax lien, or a proposed collection action. The applicable procedures may differ.
Evaluate your options
Review whether the balance is accurate, whether an appeal or other challenge may be available, and whether you may qualify for a payment arrangement or levy release.
Timing can be important. IRS collection notices may provide specific rights and response periods. Do not rely on the 21-day bank-levy holding period as the deadline for every situation. Read the notice and obtain advice promptly if you are uncertain about your rights.
Options for Resolving a Tax Garnishment or Levy
The appropriate strategy depends on the tax liability, the taxpayer’s financial information, the collection agency, and the procedural status of the case. Potential options include the following.
Request a Levy Release
The IRS may release a levy in certain circumstances, including when the tax debt is paid, collection is legally barred, a qualifying installment agreement requires release, or the levy creates an economic hardship that prevents the taxpayer from meeting basic, reasonable living expenses. Other statutory conditions may also apply.
A levy release does not automatically erase the underlying tax debt. The taxpayer may still need to make arrangements to resolve the balance, and the IRS may be able to take further collection action if the debt remains unresolved.
See the IRS guidance on how to request a levy release.
Consider an Installment Agreement
An installment agreement allows an eligible taxpayer to pay a tax balance over time. The terms and eligibility requirements depend on the account and the taxpayer’s circumstances.
A pending or approved agreement can affect the IRS’s ability to levy, but it is important to confirm how the agreement applies to an existing levy and whether any action is still required to obtain a release. Missing payments or failing to meet the agreement’s terms can create additional collection problems.
For federal tax debts, review the IRS information about payment plans and installment agreements.
Evaluate an Offer in Compromise
An offer in compromise may allow an eligible taxpayer to settle qualifying federal tax liabilities for less than the full amount owed. The IRS considers factors that include the taxpayer’s ability to pay, income, expenses, and asset equity. Qualification is not automatic, and an offer is not appropriate for every tax situation.
An offer in compromise should not be treated as a guaranteed way to stop an existing levy. Before applying, review the applicable requirements and the effect of the application on current collection activity.
The IRS explains eligibility and application requirements in its official offer in compromise guidance.
Challenge an Assessment or Collection Action
Depending on the notice and procedural history, a taxpayer may have rights to request a hearing, appeal a collection decision, or dispute the amount or validity of a tax liability. The available procedure and filing deadline depend on the type of notice and the circumstances.
A challenge should be based on the actual facts, records, and applicable law. Missing a response period can affect which options remain available, so review the notice carefully.
Review Potential Spousal Tax Relief
In some cases involving a joint federal income tax return, a taxpayer may qualify for innocent spouse relief, separation of liability relief, or equitable relief. These provisions have specific eligibility requirements and do not apply to every joint tax debt or every collection situation.
Spousal relief is not a general method for avoiding taxes simply because one spouse handled the finances. The relevant facts, type of tax, and applicable requirements must be evaluated. See the IRS information on innocent spouse relief.
Consider Whether Bankruptcy Affects the Tax Debt
Bankruptcy can affect certain tax liabilities and collection actions, but the result depends on the type of tax, the tax return and assessment history, applicable timing rules, and the bankruptcy case. Not all tax debts are dischargeable, and a bankruptcy filing should not be assumed to eliminate a tax liability or resolve every levy issue.
A taxpayer considering bankruptcy should obtain advice based on the specific tax records and financial circumstances before relying on it as a tax-collection solution.
Arizona State Tax Garnishment and Levy Issues
Tax collection procedures depend on whether the debt is owed to the IRS or the Arizona Department of Revenue. Arizona has its own processes for collecting state tax liabilities, establishing payment arrangements, and addressing state tax levies.
The Arizona Department of Revenue provides official information about tax levies for individuals and payment arrangements. The available options and procedures may differ from those used for federal tax debts.
Before responding to a state tax collection action, identify the tax period and liability involved, review the notice, and confirm which Arizona procedures apply to your circumstances.
How Carr Law Firm May Help
Addressing a tax garnishment or levy begins with understanding the collection action and the taxpayer’s available options. Depending on the matter and the scope of representation, legal assistance may include:
- Reviewing IRS or Arizona Department of Revenue notices and collection records.
- Evaluating whether the tax balance, assessment, or collection action can be challenged.
- Assessing potential payment arrangements, offers in compromise, or other applicable tax-resolution options.
- Evaluating whether the facts support a request for levy release or other available relief.
- Identifying relevant deadlines and explaining the procedures that may apply to the case.
The appropriate course of action depends on the specific tax debt and the taxpayer’s circumstances. An initial review can help identify which issues require attention and what additional records may be needed.
Frequently Asked Questions About Tax Garnishment
Can the IRS garnish my wages for unpaid taxes?
The IRS may levy wages for unpaid federal taxes after following applicable legal procedures. A wage levy can continue against future wages until it is released or otherwise ends. The amount exempt from levy depends on applicable rules and the taxpayer’s circumstances.
How long do I have before an IRS bank levy takes my money?
For a typical IRS bank levy, the bank generally holds the levied funds for 21 days before sending them to the IRS, subject to applicable rules and exceptions. Other types of levies can follow different procedures. Review the actual notice and seek prompt guidance if you need to dispute or address the levy.
Can an IRS levy be released because of financial hardship?
The IRS may be required to release a levy if it determines that the levy prevents the taxpayer from meeting basic, reasonable living expenses. The taxpayer must establish the relevant circumstances, and release of the levy does not automatically eliminate the underlying tax debt.
Will a payment plan automatically stop a tax garnishment?
Not necessarily. The effect of a payment-plan request or agreement depends on the agency, the status of the request, the agreement’s terms, and the existing collection action. Confirm whether the levy will be released rather than assuming that submitting an application automatically stops it.
Is a tax lien the same as a tax garnishment?
No. A tax lien is a legal claim against property to secure a tax debt. A levy is a collection action that takes property or funds. The procedures for addressing a lien differ from those for obtaining release of a levy.
Can bankruptcy eliminate tax debt?
Some tax debts may qualify for discharge in bankruptcy, but many do not. The result depends on the tax type, filing and assessment history, timing requirements, and other facts. Bankruptcy should be evaluated as part of a case-specific legal analysis.
Discuss Your Tax Collection Options
If the IRS or Arizona Department of Revenue is collecting unpaid taxes from your wages, bank account, or other property, understanding the notice and the available procedures is an important first step. Contact Carr Law Firm to discuss your situation and determine what legal options may be available.
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Legal Disclaimer: This article provides general information about tax garnishments, levies, liens, and potential tax-resolution options. It is not legal, tax, or financial advice and does not create an attorney-client relationship. Tax collection procedures, eligibility requirements, and deadlines depend on the facts of each matter and may change. Consult a qualified attorney regarding your specific circumstances.