Tax Lien vs. Tax Levy: The Difference and How to Stop Them

Tax liens and levies are two different steps in the collection process for unpaid taxes. If you don’t pay your taxes on time or set up another arrangement, the IRS will first place a tax lien on your property, giving the agency a legal claim in case it needs to seize it later.

If you still don’t pay, the IRS escalates things further by levying (seizing) your assets, such as your home or wages. You have several options to stop a tax lien or levy, but you must act. We’ll show you how.

What’s the difference between a lien and a levy?

First, let’s clarify what we’re talking about when we’re discussing a tax lien vs. levy. The two sound similar, but most of us aren’t dealing with these things every day—and the difference between the two is actually pretty big. 

The IRS has an elaborate series of rules and steps for when you owe taxes and what happens if you don’t pay them. The official due date for your taxes each year is April 15. If you don’t make arrangements with the IRS after that date, you can expect to receive a bill at some point.

That’s when the IRS will file a lien against your property. If you still don’t come to an arrangement with the IRS, it will eventually levy that property until your tax bill is paid. It’s crucial to understand the details and consequences at each stage of the process:. 

What is a tax lien?

Liens are common when it comes to owing money. (If you’ve ever had a mortgage or auto loan, the lender had a lien on your home or car.) A lien allows someone to reserve your property in case you don’t repay a debt. You still own it, but if you don’t pay up, that person can take over your property. 

The same applies to a tax lien. It’s the government’s way of saying, “Hey, you owe us XYZ dollars, and if you don’t pay up, we have a legal right to repossess XYZ dollars from your assets.” The IRS isn’t taking anything yet, but it will do so if needed. 

If you go long enough without arranging some kind of payment or workaround with your tax bill after April 15, the IRS will send you a demand for payment. Technically speaking, this automatically triggers a tax lien. But the IRS will also send a “Notice of Federal Tax Lien” to all your lenders, which lets them know the agency has first dibs on your assets.

A tax lien, in itself, doesn’t have many real-world impacts unless you’re making certain money moves. It can make it harder to qualify for new credit, for example, since potential lenders can see that you’re having financial issues and that others you owe money to (i.e., the IRS) have first claim on your assets. It can also make it harder to sell your home.

What is a tax levy for assets?

A tax levy, on the other hand, is when the government actually does seize your property. The IRS has broad leeway to seize just about anything you might own now or in the future, including:

• Tax refunds
• Employment wages
• Money your business takes in
• Money in bank and investment accounts
• Social Security and other government benefits
• Your home, car, boat, or other personal property

It could also take other actions, like revoking your passport. Even state taxing agencies can revoke your driver’s license or professional licensures if you don’t pay your state taxes. 

If the IRS takes any physical property, like your home or vehicle, it will hold a sale and apply the proceeds to your bill. If it’s not enough to cover your tax debt, the IRS can take more assets. Likewise, you’ll receive any money left over after the sale. (A small consolation prize, perhaps?) 

Does a tax lien or levy apply to state or federal taxes?

Yes—to both. If your state government requires you to file taxes and potentially receive refunds, the federal government can step in to take this money and apply it to your tax debt. 

The flip side is also true. Many state and local governments also require you to file and pay income taxes—with similar consequences if you don’t pay up. If you’ll be receiving any federal tax refund money, a state or local government taxing agency can step in to claim that money if you’re not paying it yourself.

Depending on where you live, your state can pursue you for payment for a longer period than the 10-year countdown for federal debt. The state may have different payment assistance options too. And as we mentioned, state agencies can revoke your driver’s license or any professional license you need for your career, like a teaching, cosmetology, or medical license. 

An indicator that a client is having tax issues might be that they’re starting to ask questions about or take assets from non-tax-efficient accounts, such as a 401(k) or IRA. Clients will often ask certain probing questions about this and how it may affect them. Typically, the best step for any kind of creditor situation is to reach out to them to discuss a compromise or payment plan for the repayment. This will not only put a plan in place that will lessen the stress of the situation but might prevent you from making a mistake that may increase the burden the situation is creating.

What does “in jeopardy of lien or levy” mean?

“Jeopardy” comes up in two contexts regarding tax liens and levies. 

First, many people use the term colloquially when discussing the consequences of not paying your taxes. You might say someone’s “in jeopardy of a tax lien or tax levy,” for example. The IRS doesn’t really use this term outside of one specific instance:

If the IRS has strong reason to believe you’re trying to permanently dodge your unpaid taxes—like if you’re offloading all of your investments to an offshore account—it might start a “jeopardy levy” process to seize your assets immediately, without the normal required notices and timelines. 

How do you stop a tax lien or levy?

Tax liens and levies often happen when people ignore requests for payment from the IRS. The IRS is (perhaps surprisingly) accommodating when it comes to making arrangements for your tax bill. But the first step is to contact the agency and explain your situation. 

Paying off your tax bill is the best way to remove a tax lien or levy already in place. Not everyone can do that, of course, but you may be eligible for the same payment arrangements as anyone else. 

These can still stop a tax levy from proceeding and get you on the path to removing the lien entirely:

• Set up an affordable tax payment plan
• Settle your debt for less than you owe with an Offer in Compromise (OIC)
• Ask for more time to pay by listing your tax bill as “Currently Not Collectible” (CNC)

If you have a tax lien or levy in place, here are a few additional options:

• File for a “Discharge of Property” to remove a tax lien from specific assets
• File an appeal if you think the IRS made a mistake or if a tax levy would cause “immediate economic hardship”
• File for a subordination to let other creditors move ahead of the IRS in lien priority, allowing easier access to credit

You can pursue any or all of these options independently, with help from a low-income taxpayer clinic, or with paid support from a tax relief company. 

We recommend Anthem Tax Services as a trusted partner if you’re facing a tax lien or levy. Its team offers expert guidance to help you negotiate affordable payment plans, pursue an OIC, or even request CNC status. 

With Anthem Tax Services, you’ll get personalized support to explore options like filing for a Discharge of Property or subordination, ensuring you have the best strategy to resolve your tax issues and protect your assets. The experienced team is dedicated to helping you navigate IRS challenges and work toward lifting the lien or stopping the levy ASAP.

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