Conceptual hand writing showing Wage Garnishment

When dealing with debt, it is crucial to understand the difference between a garnishment and a tax levy. Both are potent tools creditors use to collect a debt, but how they operate is quite different. This blog will discuss the differences between garnishment and tax levy and explain how they work.

What Is a Garnishment?

A garnishment is a powerful legal tool for creditors, as it allows them to receive payment for debts even when the debtor is unable or unwilling to pay.

The garnishment process usually begins with a court order that requires a debtor’s employer to hold back on a certain amount of the debtor’s wages and send it directly to the creditor. The amount of money that can be garnished from a debtor’s wages is usually limited by law, and the amount of the garnishment depends on state and federal guidelines.

What Is a Tax Levy?

A tax levy is a legal action involving seizing a taxpayer’s property or assets to satisfy a tax debt. It is usually used as a last resort to collect taxes from those unwilling or unable to pay. The IRS can levy on various assets, including bank accounts, wages, investments, and real estate. The most common type of tax levy is wage garnishment, when the IRS takes a portion of an individual’s wages to pay off the tax debt.

How Does a Garnishment Work?

Garnishment is a process that is most commonly used when the debtor has failed to pay a debt owed. The garnishment begins when a creditor files a court order with the debtor’s employer or bank to collect the money. Depending on the state, the employer or bank may have to notify the debtor before the garnishment begins.

In most cases, the creditor can take a certain percentage of the debtor’s wages or money in the bank account to satisfy the debt. This amount is limited by law and depends on the state. The garnishment process can be long and complicated, and it is crucial to understand the laws and regulations in your state before attempting to collect a debt through a garnishment. In some cases, the debtor may be able to have the garnishment stopped or reduced by filing a motion with the court.

How Does a Tax Levy Work?

When a tax levy is placed, the IRS or other agencies will typically notify the taxpayer of their rights and the steps they must take to pay off the debt. The IRS or other agencies will assess the taxpayer’s ability to pay, then determine the most appropriate levy type. Suppose the taxpayer cannot pay the full amount due. In that case, the agency might negotiate a payment plan or agree to a reduced amount.

If the taxpayer cannot pay, the agency will take legal action to collect the debt. This might involve a wage garnishment when the agency takes a portion of the taxpayer’s wages each pay period until the debt is paid off. A lien might also be placed on the taxpayer’s property, or the agency might even seize the taxpayer’s bank account or other assets.

Garnishment Vs. Tax Levy: Key Differences

Tax levies and garnishment are two of the most common methods the IRS uses to collect unpaid taxes. Knowing the differences between the two can make all the difference when paying your taxes. Here’s how both differ:

  • Notice Requirement: With a tax levy, the IRS must first send a notice of intent to levy and a Final Notice of Intent to Levy at least 30 days before taking action. With a garnishment, the IRS does not need to issue any notices before taking action.
  • Property Covered: With a tax levy, the IRS can take possession of any property that the taxpayer, including real estate, vehicles, bank accounts, wages, and more own. With a garnishment, the IRS can only take possession of property already in possession of the taxpayer, such as wages, bank accounts, and any other income earned.
  • Duration: A tax levy can last up to 10 years, while a garnishment typically lasts up to six months.
  • Collection Process: With a tax levy, the IRS can seize any property owned by the taxpayer and sell it to pay the taxes owed. With a garnishment, the IRS can only take a portion of the income or bank accounts of the taxpayer.
  • Appeal: With a tax levy, the taxpayer can appeal the levy and request a Collection Due Process hearing. With a garnishment, the taxpayer does not have the right to appeal the garnishment.
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