Tax Levy

What is a tax levy?

A tax levy is the IRS or state tax authority's legal seizure of property or wages to satisfy unpaid tax debt. When an employee has a tax levy, the employer receives a notice requiring withholding from wages until the debt is paid or the levy is released. Unlike garnishments with percentage limits, tax levies can take a larger portion of wages, leaving only a small exempt amount.

Calculating levy withholding

The IRS provides tables showing the exempt amount based on filing status and number of dependents claimed on the employee's Statement of Exemptions (Part 3 of the levy notice). Everything above the exempt amount is subject to levy. If the employee does not return the statement within three days, calculate the exempt amount as married filing separately with zero dependents, the least favorable option.

Employer compliance requirements

You must honor the levy notice. Failure to withhold makes you liable for the amounts you should have withheld. Begin withholding by the next pay period after receiving the notice. Remit payments as directed, usually to the IRS address on the notice. Continue until you receive a release. Do not stop because the employee says the debt is paid without official release documentation.