What Is the Difference Between a Tax Lien and a Tax Levy?

Allison Blackham

Expert Contributor
Last Updated: December 9, 2021

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Tax liens are different from tax levies in several key ways.
A tax lien is a legal claim against a property, while a tax levy is the actual seizure of a property.
The IRS has the legal right to file both tax liens and tax levies against taxpayers’ property to recoup a back taxes.

It’s important to differentiate between a tax lien and a tax levy because they represent two distinct actions. The Internal Revenue Service (IRS) and state tax agencies have the legal authority to file both tax liens and tax levies against taxpayers on the federal and state levels.

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1 A Tax Lien

2 A Tax Levy

3 Restricted Items for Tax Levy

4 How Does the IRS Issue a Lien?

5 How Does the IRS Issue a Levy?

6 Stopping a Levy or Lien

Although the two do share some similarities, they refer to different processes.

A Tax Lien

A tax lien is a legal claim made by a state or federal government agency against your property to secure the payment of a back taxes. It is similar to collateral in that it serves as protection for the amount owed. By placing a lien against a taxpayer’s property, the IRS or state tax agency is securing its right to property which the taxpayer owns, as well as any property the taxpayer might purchase in the future. Liens are most commonly made on real estate, although other assets can be claimed through the lien process.

The IRS has the legal authority to place liens through the Internal Revenue Code. Creditors have limited priority to a taxpayer’s property as long as the purchase was made within 45 days of receiving a Notice of Federal Tax Lien. The ability to file a lien against a property depends on what the taxpayer knows and when he or she received word of outstanding back taxes.

When the IRS files a federal lien against a taxpayer, it will file with the clerk of courts or county recorder in the county where the property is located. This process automatically encumbers your personal property and real estate within that county.

What Is the Difference Between a Tax Lien and a Tax Levy?

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A Tax Levy

A tax levy is the legal right to seize your property to satisfy outstanding back taxes. The process is similar to garnishment or seizure and can be filed against a taxpayer’s accounts receivable, wages, bank accounts, retirement accounts, or subcontractor pay. Additionally, the IRS or state government has the legal right to seize your business equipment, vehicles, and house to repay back taxes.

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Restricted Items for Tax Levy

Under the Internal Revenue Code 6334, the IRS or state government cannot levy certain items. These include:

Educational books that are necessary to the taxpayer or member(s) of the taxpayer’s family.
Clothing
Personal care items
Furniture
Fuel
Personal items and effects (the value of personal care, personal items, effects, fuel, and furniture cannot exceed a total of $6,250).
Professional and business supplies, tools, and other items that are necessary for the taxpayer to produce income (including books and other trade-related items).
Unemployment benefits allocated to the taxpayer or dependents
Undelivered mail
Certain pension and annuity payments
Workers’ compensation
Any income that allows the taxpayer to comply with a judgment or court order granting support to children under 18 years of age.
Certain public assistance payments, including public welfare and public assistance payments that come from a government agency.
Assistance provided through the Job Training and Partnership Act.
Primary residences (if you owe less than $5,000 in back taxes).

How Does the IRS Issue a Lien?

The IRS will file a Notice of Federal Tax Lien, which informs creditors that the federal government holds the legal right to any property you own. Any equity in the property goes directly to the IRS if you sell it. You, the taxpayer, will receive a notice of collection action, which outlines your tax liability, as well as the legal right to contest it.

How Does the IRS Issue a Levy?

To issue a tax levy, the IRS will send a Final Notice of Intent to Levy to the taxpayer by mail. However, the IRS can file a lien prior to sending this notice, as it has the right to go straight to seizing your property to collect on a back taxes. The IRS also does not search existing liens before filing a levy, so it will not be aware of any other creditors that might have filed liens against your property.

Stopping a Levy or Lien

To remove a levy or lien from your property, you must pay the outstanding owed back taxes. This is the fastest way to resolve the issue. However, if you cannot pay the full amount, including any penalties and interest that have been assessed, you do have the right to appeal both a lien and a levy. If you have a federal tax lien on your property, you have 30 days from the date specified in your Notice of Federal Tax Lien to submit an appeal.

The Fresh Start Initiative might be an option to help taxpayers reduce outstanding back taxes, which will effectively remove the lien on their property. This back tax assistance program allows taxpayers to submit offers in compromise to the IRS. If the IRS accepts an offer, that offered amount serves as payment in full for the back taxes. The Fresh Start Initiative has improved this program’s flexibility, allowing more taxpayers to take advantage of its benefits. Additionally, the initiative has made it easier for individuals to qualify for both the offer in compromise program and installment agreements.

A lien can expire, but the statute of limitations is generally 10 years. In most cases, the IRS will file a levy to seize your property before the statute expires, so don’t wait for this to pass before taking action. To protect your property from being seized, you will either need to pay back the amount you owe the IRS, appeal, or use one of the agency’s available back tax assistance options.

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If you are facing the financial strain of back taxes, we can help. Visit Solvable to find out how you can overcome your back taxes and enjoy financial freedom through our helpful tools and resources.

Allison Blackham

Expert Contributor
Last Updated: December 9, 2021

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