Tax Levies & Garnishments

If you owe unpaid federal or state taxes, the Internal Revenue Service or your state's tax board can collect from you in a variety of ways. Two common methods governments use when recovering tax debts are tax levies and garnishments. Both tax levies and garnishments are involuntary -- forcing you to pay off the debt if you do not make voluntary payment arrangements.

How It Works

A tax levy occurs when the IRS or state directs your bank to freeze your accounts. The government then seizes payment for the tax debt directly from your checking and savings accounts. A garnishment differs from a levy in that the government seizes a portion of income you are due to receive, such as wages, before you receive it. Unlike commercial creditors, government entities do not need to sue you before garnishing your income or levying your bank accounts.

Time Frame

The IRS has 10 years to collect unpaid tax debts. After 10 years, the statute of limitations for doing so expires, and the IRS must release any pending levies or garnishments against you. State governments also adhere to a statute of limitations, which varies depending on the debtor's state of residence.

In general, garnishment will continue until the government collects the full amount the debtor owes or the statute of limitations expires. A bank levy provides the government with a one-time lump-sum payment from the debtor's account, but it can execute numerous bank levies until the debt is paid in full.

Special Permissions

Government agencies can legally garnish and levy income that commercial creditors cannot. Social Security payments, for example, are exempt from garnishment and levy by banks, hospitals, collection agencies and other commercial creditors. The IRS, however, can both garnish Social Security benefits and seize them from the debtor's bank through a levy. Neither the state nor the federal government can garnish child support payments.

Amount Seized

Title III of the Consumer Credit Protection Act regulates wage garnishment amounts in order to protect consumers. These garnishment restrictions apply to both commercial and government creditors. The IRS or state tax board can either seize 25 percent of your take-home earnings or the amount by which your earnings exceed thirty times the minimum wage per pay period.

The IRS gives consumers additional leeway with garnishments and levies by limiting the amount seized based on the number of dependants the debtor has. For example, if the debtor is single and claims only himself on his tax return, $182.69 of his weekly income is exempt from garnishment by the IRS.