Key Takeaways
Dealing with an IRS levy can be incredibly stressful, especially when it creates a significant financial hardship. A levy allows the IRS to legally seize your assets, such as bank accounts, wages, and other property, to satisfy a tax debt. If this action is making it difficult to cover basic living expenses, it’s essential to know your options for relief.
Understanding IRS Levy Hardship Relief and Tax Lien Removal
An IRS levy can quickly drain your finances, making it impossible to afford essentials like rent, food, utilities, and medical care. When the IRS seizes your wages, bank accounts, Social Security benefits, or other assets to collect unpaid taxes, it can create a severe financial hardship—one that leaves you struggling to cover even basic living expenses.
The IRS can even levy your spouse’s bank account if both of you are legally responsible for the tax debt. However, if you live in a community property state, the IRS may seize up to 50% of the funds in the joint account. If you are filing jointly, both spouses are generally responsible for the tax liability.
If your IRS levy is causing a financial hardship, you have the right to seek relief through various IRS programs. These can include levy release, installment agreements, and tax lien removal. For wage levies, the IRS is required to release the levy if it’s causing you immediate economic hardship. For bank account levies, the IRS has discretion and may release the levy under hardship circumstances. Either way, you should contact the IRS immediately and document your hardship.
What’s the Difference Between a Tax Levy and a Tax Lien?
Many taxpayers confuse tax levies and tax liens, but they serve different purposes:
A tax levy is the active seizure of your assets—such as wages, bank accounts, or property—to satisfy a tax debt.
A tax lien is a claim against your assets, meaning the IRS has a legal right to your property if you sell it, but they haven’t seized anything yet.
While levies result in immediate financial loss, tax liens can impact your ability to secure loans, mortgages, or new lines of credit. If you’re struggling with a levy or a lien, relief options are available to help stop collections and remove tax liens from your record.
Understanding the Situation: When an IRS Levy Causes Financial Hardship
Before seeking relief, it’s important to determine whether your IRS levy qualifies as a financial hardship under IRS guidelines. A financial hardship is typically defined as a situation where the levy leaves you unable to meet basic, reasonable living expenses. These include things like rent, utilities, food, and medical costs. If you’re struggling to pay for these necessities due to the levy, you may qualify for relief.
The IRS considers a levy to cause hardship when it prevents you from paying basic, reasonable living expenses (housing, food, utilities, transportation, medical), evaluated using IRS Collection Financial Standards. See IRS Publication 594 and Publication 1494 (tables for amounts exempt from levy on wages).
Examples of IRS Levy Hardship Situations
An IRS levy is likely causing financial hardship if it prevents you from affording:
Rent or Mortgage Payments: If the levy takes funds that would otherwise cover your housing costs, putting you at risk of eviction or foreclosure.
Utility Bills: If you are unable to pay for electricity, water, heating, or other essential services.
Food and Groceries: If the levy leaves you without enough income to provide meals for yourself or your family.
Medical Care or Prescription Costs: If you cannot afford necessary medications, health insurance premiums, or medical treatments due to the levy.
Child Support or Dependent Care: If the levy takes funds meant for legally required child support payments or necessary daycare expenses.
Transportation Costs: If the levy prevents you from making car payments, purchasing gas, or covering public transportation needed to commute to work.
Assets That Can Be Levied
While many people think of IRS levies as targeting only bank accounts or wages, the IRS has the authority to seize a wide range of assets, including:
Wages and Salary: The IRS can garnish a portion of your paycheck before you even receive it.
Bank Accounts: The IRS can freeze and withdraw funds directly from checking or savings accounts.
Retirement Accounts: In some cases, the IRS may seize funds from pensions, 401(k)s, and IRAs.
Business Assets: If you’re self-employed, the IRS can seize business income, accounts receivable, and even physical assets like equipment or inventory.
Property and Vehicles: The IRS may seize and sell real estate, personal vehicles, or other valuable property to satisfy tax debt.
If any of these levies severely impact your ability to afford basic necessities, you may qualify for hardship relief. The next steps involve proving your financial situation to the IRS and requesting a levy release or alternative tax relief option.
How Bank Levies Work (21-Day Freeze and Repeat Levies)
When the IRS issues a bank levy, the process follows specific rules that many taxpayers are unaware of. Understanding how it works can help you act quickly and potentially prevent permanent loss of funds.
21-Day Freeze Period: When your bank receives a levy notice, it must freeze the funds in your account for 21 days before sending the money to the IRS. This holding period gives you time to resolve the issue, request a levy release, or prove financial hardship.
Funds Captured at the Time of Levy Only: A bank levy only captures the funds that are in your account at the exact moment the levy is processed. It does not automatically take future deposits under that specific levy.
Future Deposits Are Not Protected: Although a single levy only applies to funds present at the time of service, the IRS can issue additional levies. If your tax debt remains unresolved, the IRS may send repeat levies to capture future deposits.
Deadlines to Act: The 21-day window is critical. During this time, you may be able to:
Request a levy release due to financial hardship
Set up an installment agreement
Submit an Offer in Compromise
Correct an IRS error. Once the 21 days expire, the bank must send the frozen funds to the IRS.
Hardship Considerations: If the levy prevents you from paying necessary living expenses such as rent, utilities, or food, you may qualify for a hardship release. Acting quickly greatly improves your chances of stopping the levy before funds are transferred.
Because bank levies can be repeated and move quickly once initiated, early intervention is key to protecting your assets and limiting financial damage.
Request a Release of Levy: How to Get an IRS Levy Released Due to Hardship
If you believe the levy is causing a hardship, you can request the IRS to release it. The IRS is required to release a levy if it prevents you from meeting basic living expenses. However, you must provide financial documentation proving that you qualify. It’s crucial to note that levy releases are not permanent. Even if the IRS approves your levy release due to hardship, this does not erase your tax debt. The levy can be reinstated later if you do not set up a repayment plan, such as an installment agreement or Offer in Compromise. Taking steps to resolve your tax debt after a levy release can prevent future collection actions.
Immediate Economic Hardship Levy Release
Contact the IRS immediately. Call the phone number on your levy notice to request a levy release due to “immediate economic hardship.”
Document hardship. Prepare Form 433-A (or 433-F if requested), recent pay stubs, bank statements, rent/mortgage, utilities, food, medical, and transportation bills showing you can’t meet basic, reasonable living expenses.
Request release. Ask the IRS to fax the release directly to your employer or bank; have their fax number ready.
Act quickly. Bank levies have a 21-day holding period before funds are sent to the IRS.
What happens next: A release stops the immediate seizure but doesn’t erase the tax debt. The IRS may place your account in Currently Not Collectible (CNC) status or set up a payment plan (installment agreement).
Steps to Request a Levy Release Due to Hardship
To request a levy release, you’ll need to contact the IRS immediately. You can contact the IRS at the number provided on your levy notice. Be prepared to discuss your financial situation in detail.
Next, you’ll need to submit Form 433-A. This is a Collection Information Statement for Wage Earners and Self-Employed Individuals. It provides the IRS with a detailed picture of your income, expenses, assets, and liabilities. You may also need to submit documents such as pay stubs, bank statements, and bills to prove your financial hardship.
Once you submit your documentation, you’ll await IRS review. The IRS will assess your financial situation and determine whether the levy should be fully or partially released. If approved, the IRS will notify your employer or bank to stop the levy. If denied, you may need to appeal the decision or explore other tax relief options.
Hardship Levy Release Processing Time
Processing time depends on your situation. For urgent hardship cases — especially wage levies — the IRS can act within a day or two and fax a release directly to your employer or bank. Have their fax number ready when you call. The key is to act quickly. Bank accounts have a 21-day hold window before funds are sent to the IRS.
When the IRS Cannot Levy
In certain situations, the IRS is legally prohibited from issuing or continuing a levy. If any of the circumstances below apply to you, it is critical to notify the assigned IRS revenue officer or Automated Collection System (ACS) representative immediately.
Active Bankruptcy Proceedings: When you file for bankruptcy, an automatic stay generally goes into effect. This stay temporarily stops most collection activity, including levies.
Approved Installment Agreement: If you are in a formally approved installment agreement and are making payments as agreed, the IRS typically cannot issue a levy.
Pending Offer in Compromise (OIC): While a properly submitted Offer in Compromise is under review, the IRS generally suspends levy action. However, simply mailing in an OIC does not automatically stop a levy.
Timely Requested CDP Hearing: If you requested a Collection Due Process (CDP) hearing within the 30-day deadline after receiving a Final Notice of Intent to Levy (LT11/Letter 1058), levy action is generally paused while your appeal is pending.
If you believe a levy was issued in error or while one of these protections was in place, contact the IRS immediately and provide documentation supporting your position. Acting quickly can help prevent funds from being seized or may lead to a prompt release of the levy.
Other Tax Relief Options
You can also look into other forms of tax relief if your IRS levy is causing a hardship.
Offer in Compromise: Settle Your Tax Debt for Less
An Offer in Compromise (OIC) is an agreement between you and the IRS that settles your tax debt for less than the full amount you owe. This option may be available if paying the full tax liability would cause financial hardship. While this option can provide significant relief, it’s important to understand that the IRS approves only a fraction of OIC applications. The process is rigorous, and you may want to consult a tax professional to increase your chances of success.
To apply, you must submit:
Form 656 (Offer in Compromise Application)
Form 433-A (Collection Information Statement), detailing your income, expenses, assets, and liabilities.
A nonrefundable application fee (unless you qualify for a low-income waiver).
If approved, your tax debt can be settled for a fraction of what you owe. If denied, you may still qualify for an installment agreement or Currently Not Collectible (CNC) status.
Installment Agreements: Avoid Levies and Remove Tax Liens
If you cannot pay your tax debt in full, an IRS installment agreement allows you to make monthly payments over time. Setting up an installment agreement can help you stop IRS collections, remove a tax lien, and even prevent future levies. When looking into installment agreements, you’ll need to decide which type is best for you:
Short-Term Payment Plan: For debts under $100,000, allows up to 180 days to pay.
Long-Term Installment Agreement: For debts under $50,000, allows monthly payments over several years.
Partial Payment Installment Agreement: Lets you pay a reduced amount over time, similar to an Offer in Compromise but without the full debt forgiveness.
Appeal Options (See IRS Publication 1660, Collection Appeal Rights)
Collection Due Process (CDP): Request within 30 days of the Notice of Intent to Levy/Right to a Hearing (Letter 1058 or LT11). Stops most collection while the appeal is pending. You can propose an installment agreement, Offer in Compromise, or CNC.
Collection Appeals Program (CAP): Available for levy, seizure, or rejection/termination of installment agreements. Faster than CDP but no Tax Court review.
If denied: You may petition the U.S. Tax Court after a CDP determination within 30 days.
How to request: Follow the instructions on your notice or file Form 12153 for a CDP hearing.
Important IRS Notices and Deadlines
Before the IRS can issue most levies, it must first send a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. This notice is commonly referred to as LT11 or Letter 1058. Understanding this notice, and the deadline attached to it, is critical to protecting your rights.
What Is LT11 or Letter 1058?
This is the IRS’s formal warning that it intends to levy your wages, bank accounts, or other assets. It is typically sent by certified mail to your last known address.
The 30-Day Window to Request a CDP Hearing
From the date on the notice, you have 30 days to request a Collection Due Process (CDP) hearing. If you submit your request within that timeframe, the IRS is generally prohibited from moving forward with the levy while your case is being reviewed.
What Happens During a CDP Hearing?
A CDP hearing allows you to:
Challenge the proposed levy
Propose alternatives such as an installment agreement or Offer in Compromise
Raise hardship concerns
In some cases, dispute the underlying tax liability
If You Miss the 30-Day Deadline
If you do not request a CDP hearing within 30 days, the IRS can proceed with enforced collection. You may still request an Equivalent Hearing within one year. However, collection activity can continue while your case is being considered, and you lose certain appeal protections.
Because levy notices come with strict deadlines, acting quickly is essential. Missing the 30-day window can significantly limit your options and allow the IRS to move forward with seizing your assets.
If the Tax Debt Isn’t Yours
In some cases, a levy may stem from a tax debt that you do not believe you owe. This situation often arises with jointly filed returns or in community property states. If the liability truly is not yours, there may be relief options available that can stop or limit levy action.
Innocent Spouse Relief
If you filed a joint tax return, both spouses are generally held responsible for the full amount of tax due. However, the IRS offers several types of Innocent Spouse Relief that may remove your responsibility for some or all of the debt.
Innocent Spouse Relief – May apply if your spouse or former spouse understated tax due to errors or omissions, and you did not know or have reason to know about the issue.
Separation of Liability Relief – Allocates the tax debt between you and your spouse (or former spouse), so you are only responsible for your portion.
Equitable Relief – May be available if you do not qualify for the other types of relief but it would be unfair to hold you responsible based on the facts and circumstances.
If relief is granted, the IRS may reduce or eliminate your responsibility for the debt and adjust or release levy action tied to that liability.
Community Property Considerations
If you live in a community property state, the IRS may be able to seize the full balance of a joint account. This is because all marital assets are generally considered jointly owned. However, if the IRS is trying to collect a debt owed only by one spouse, it may be limited to that spouse’s share of separate income or property. The rules here are complex, and speaking with a tax professional is strongly recommended. There are currently 9 community property states, including Arizona, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.
What to Do If You Believe the Debt Isn’t Yours
If you believe the tax debt is solely your spouse’s or former spouse’s responsibility:
Request account transcripts to confirm how the liability arose
Determine whether Innocent Spouse Relief applies
Notify the IRS immediately if a levy has been issued
Submit the appropriate relief forms as soon as possible
Levies can move quickly, but relief options exist when the underlying tax debt is not truly yours. Acting promptly can help protect your income and assets while your claim is reviewed.
Seek Professional Help: Get Expert Assistance to Stop an IRS Levy
Dealing with an IRS levy can be overwhelming, especially when it’s difficult to cover essential expenses. While you can attempt to resolve the issue on your own, working with a trusted tax resolution firm like Optima Tax Relief can significantly improve your chances of getting the levy released and finding a long-term solution to your tax debt.
Why Work with Optima Tax Relief?
Stronger Negotiation Power: Our tax professionals have extensive experience working directly with the IRS and know how to present your financial hardship case effectively.
Better Installment Agreements: We can help negotiate lower monthly payments and work to reduce penalties or interest on your tax debt.
Higher Chances of Levy Release Approval: By properly completing and submitting Form 433-A and supporting documentation, our team can improve your chances of getting a levy released due to hardship.
Preventing Future Levies: We’ll help you set up a long-term tax resolution plan, such as an Offer in Compromise or Currently Not Collectible (CNC) status, ensuring that you don’t face levies in the future.
Every day that an IRS levy remains in place, the IRS can seize more of your income, making it harder to pay for rent, groceries, medical bills, and other essential expenses. Taking action now can stop the levy and help you regain control of your financial future.
Prepare for the Future: Avoid Future IRS Levies & Tax Liens
Once the immediate crisis is resolved, take steps to prevent future tax issues. Set up a payment plan with the IRS if you still owe back taxes and ensure that you stay current with all future tax obligations. Seek penalty abatement if you meet the qualification. Remember to file and pay your taxes on time every year. This is the best way to avoid any future IRS levies and tax liens. Consider working with a tax professional to manage your finances and avoid falling into similar situations in the future.
What Percentage Does the IRS Usually Settle For?
There is no single percentage that the IRS typically settles for when it comes to Offers in Compromise (OIC). Unlike some negotiated settlements with private creditors, the IRS does not apply a standard discount rate across all cases. Instead, the amount the IRS will accept is based on your reasonable collection potential (RCP) — a calculation of how much the IRS realistically expects it can collect from you through future income, assets, and other financial resources.
Here are key points to understand:
No fixed percentage: The IRS does not have a preset percentage (like 50% or 30%) that it will accept. Each OIC amount is uniquely determined by your financial situation.
Reasonable Collection Potential (RCP): The IRS uses RCP as the basis for evaluating your offer. Your offer must equal or exceed your RCP for the IRS to consider acceptance. RCP considers income, allowable living expenses, and asset equity.
Lump-sum offers: If you submit a lump-sum offer, you must include at least 20% of your total offer amount with your application.
Periodic payment offers: If you choose to pay in monthly installments, those payments must follow the terms the IRS accepts and continue during the review period.
An Offer in Compromise is highly individualized. There’s no universal percentage the IRS “usually settles for,” and the accepted amount depends primarily on what the IRS determines it can reasonably collect from you.
Frequently Asked Questions
How long does a bank have to hold levied funds before sending them to the IRS?
Banks must freeze the levied funds for 21 days before remitting them to the IRS. Use this window to seek a hardship release, set up an agreement, or file an appeal.
Will the IRS keep levying my account on new deposits after the first levy?
A bank levy only captures funds in the account at the time of levy. However, the IRS can issue repeat levies, so future deposits can be seized if additional levies are sent.
What notice must the IRS send before levying, and how long do I have to appeal?
The IRS must issue a Final Notice of Intent to Levy (LT11/Letter 1058). You generally have 30 days to request a Collection Due Process (CDP) hearing to pause enforcement while you appeal.
Are there situations where the IRS is not allowed to levy at all?
Yes. The IRS generally cannot levy if you’re in bankruptcy, have an approved installment agreement, have a pending CDP hearing or timely appeal, or have a pending Offer in Compromise.
Does a hardship levy release eliminate my tax debt permanently?
No. A hardship release stops or reduces the levy but doesn’t wipe out the balance. You’ll need a resolution like an installment agreement, Currently Not Collectible status, or an Offer in Compromise to address the debt long term.
Tax Help for Those Being Levied by the IRS
An IRS levy can be overwhelming, but it’s important to know that options are available, especially if it’s causing a financial hardship. By taking proactive steps, communicating with the IRS, and seeking professional help, you can work towards resolving the issue and regaining financial stability. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers.
If You Need Tax Help, Contact Us Today for a Free Consultation
