If you owe federal taxes and the IRS has begun collection activity, you may hear terms such as IRS levy, bank levy, and wage garnishment. These terms are sometimes used interchangeably, but they do not mean exactly the same thing.
So, what is the difference between an IRS levy and wage garnishment? An IRS levy is a legal collection action that allows the government to seize property or rights to property to satisfy a tax debt. A wage garnishment—more accurately called an IRS wage levy—is one specific type of levy that reaches a taxpayer’s wages.
The distinction matters because a levy against a bank account can affect money you have already accumulated, while a wage levy can continue affecting future paychecks. Both can create serious financial consequences.
If you are dealing with federal tax collection activity, visit our IRS Tax Relief page to learn more about how GMD Tax Law assists taxpayers facing IRS collection problems.
What Is an IRS Levy?
An IRS levy is a collection tool available to the federal government when taxes remain unpaid. A levy allows the IRS to legally seize certain property or rights to property belonging to a taxpayer.
Depending on the circumstances, an IRS levy may reach different types of assets or income. One of the most common examples is money held in a bank account. Another is wages being paid by an employer.
This is why the word “levy” should be viewed as the broader term. A bank levy and a wage levy are different collection actions, but both fall within the IRS’s levy authority.
If you are concerned about money in a bank account, our IRS Bank Levy Help page explains more about this type of IRS collection action.
What Is an IRS Wage Garnishment?
When people refer to an IRS wage garnishment, they are generally talking about an IRS wage levy.
Instead of reaching money sitting in a bank account, the IRS directs the taxpayer’s employer to withhold a portion of wages and send those funds to the government.
This distinction becomes especially important because a wage levy is generally continuous. Once it begins, it can affect paycheck after paycheck until the levy is released or the underlying collection matter is otherwise resolved.
For more information about wage levies, visit our IRS Wage Garnishment Help page.
IRS Bank Levy vs. Wage Garnishment: What’s the Main Difference?
The easiest way to understand the difference is to consider what the IRS is attempting to reach.
A bank levy generally targets funds held by a financial institution. A wage levy targets income being paid to a taxpayer by an employer.
Although both are IRS collection actions, their practical effects can be very different.
A bank levy can suddenly place money that you expected to use for bills and other expenses at risk. A wage levy can reduce the income available to you every time you are paid.
Neither should be treated as a routine collection notice. By the time the IRS is levying assets or wages, the tax matter has generally progressed significantly through the collection process.
Does a Bank Levy Keep Taking Money Like a Wage Garnishment?
This is another major difference between the two collection actions.
An IRS wage levy is generally continuous. It can remain attached to wages and affect subsequent paychecks.
A typical levy on a bank account operates differently. It generally attaches to funds in the account when the levy is received, subject to the applicable federal procedures.
That does not mean the IRS is limited to taking collection action only once. If a tax debt remains unresolved, additional collection activity may occur.
If you are worried about an IRS levy against your bank account, read Can the IRS Freeze My Bank Account?.
Which Is More Serious: an IRS Bank Levy or Wage Garnishment?
There is no universal answer. Either can create significant financial problems.
A bank levy may interfere with money that was intended for a mortgage payment, rent, utilities, payroll, or other immediate expenses. The impact can be particularly severe when a taxpayer discovers that funds they expected to have available are suddenly subject to IRS collection.
A wage levy creates a different problem: continuing pressure on cash flow. Instead of a single disruption involving funds in an account, the taxpayer may receive substantially reduced paychecks over multiple pay periods.
The seriousness of either collection action depends on the taxpayer’s individual financial circumstances, the amount owed, the assets or income involved, and the status of the underlying IRS matter.
Can the IRS Take an Entire Paycheck?
An IRS wage levy generally does not mean that every dollar of an ordinary paycheck will be taken. Federal law provides an exempt amount.
However, taxpayers can still be surprised by how much of their wages may be affected. The amount remaining after a levy may be significantly less than the taxpayer ordinarily relies upon to cover household expenses.
That is one reason an IRS wage levy can create financial pressure very quickly.
Our article Can the IRS Take My Entire Paycheck? discusses the financial impact of an IRS wage levy in greater detail.
What Happens Once a Wage Garnishment Has Started?
Once an employer receives an IRS wage levy, the employer generally has a legal obligation to comply. The employer does not decide whether the tax liability is correct or whether the taxpayer can afford the reduction in income.
Because the levy is generally continuous, subsequent paychecks may also be affected.
This is one reason taxpayers should not assume that the problem will disappear after one payroll period. A continuing levy can make it increasingly difficult to keep up with ordinary financial obligations.
Read What Happens After an IRS Wage Garnishment Starts? to learn more about what a taxpayer may experience once wages are being levied.
Can the IRS Levy Both Wages and a Bank Account?
Taxpayers sometimes assume that if the IRS has already taken one collection action, other assets are automatically protected. That is not necessarily the case.
The IRS has broad collection authority, and the appropriate collection action depends on the circumstances surrounding the taxpayer’s account.
That makes the distinction between a bank levy and wage garnishment particularly important. They are not competing names for the same action. They are different ways the IRS may use its levy authority to collect unpaid federal taxes.
Why IRS Levies Should Not Be Ignored
Whether the IRS is targeting a bank account or wages, a levy generally indicates that the collection matter has reached a serious stage.
Ignoring the problem may allow the financial consequences to continue or additional collection activity to occur. A wage levy can continue reducing paychecks, while unresolved tax liabilities may expose other assets to collection.
Taxpayers sometimes wait because they believe there is nothing that can be done once a levy begins. That assumption can be costly.
If your wages are already being affected, read How Do I Stop IRS Wage Garnishment? for additional information about why an existing wage levy should be addressed promptly.
Every IRS Collection Case Is Different
Understanding the difference between an IRS levy and wage garnishment is useful, but knowing the terminology does not determine how a particular tax problem should be handled.
The appropriate strategy depends on factors such as the amount owed, the taxpayer’s financial circumstances, filing compliance, previous IRS collection activity, and other facts specific to the case.
Two taxpayers facing similar collection actions may have very different circumstances and very different potential resolutions.
That is why general information about IRS levies should not be treated as a substitute for evaluating the individual tax matter.
Contact GMD Tax Law About an IRS Levy or Wage Garnishment
If you are asking, “What is the difference between an IRS levy and wage garnishment?”, you may already be concerned about IRS collection action against your income or assets.
An IRS levy is the broader collection authority, while a wage garnishment is one form of levy directed at wages. Whether the IRS is targeting your paycheck, bank account, or other property, the underlying tax problem should not be ignored.
GMD Tax Law represents taxpayers facing IRS collection matters and helps clients understand their circumstances and evaluate potential resolution strategies.
Contact GMD Tax Law today to schedule a consultation and discuss your IRS collection matter.
