What is the Difference Between a Tax Lien and Tax Levy?

By Todd Whalen - September 17, 2021

What is the Difference Between a Tax Lien and Tax Levy?

No one likes talking about their taxes, but avoiding the topic creates a situation where many taxpayers don't understand the trouble they face when confronted with a tax lien or a tax levy. 

To help you better understand what you might be dealing with, let's take a closer look at each of them and visit our IRS Notice of Lien, Levy, & Garnishments page to learn more.

What is a Tax Lien?

A tax lien is a legal claim against a taxpayer's property filed by the IRS or the state. It is a public notice to all current and potential creditors that someone has failed to meet their tax obligations.

Tax liens show up on a taxpayer's credit report, so they often act as a powerful incentive for the taxpayer to settle in some way. It is smart to get that red flag removed from your credit report before the problem worsens. Tax liens are also published in local newspapers, so they can be embarrassing for anyone who values their reputation in the community.

While a tax lien can ruin your credit score and embarrass you in your community, it is still only a claim against your assets and is the lighter of the two options we are considering here.


What is a Tax Levy?

While a lien acts as a warning, a tax levy is a much more serious situation that involves the taxing authority confiscating some form of property to settle an outstanding balance. This occurs once a lien is issued and not taken care of by the taxpayer.

In many cases, this involves the repossession of real estate, but a tax levy can involve any physical asset, including bank accounts, retirement accounts, wages, receivables, rental property income, and any other form of property.

How Should You Respond?

Time is always essential when responding to a tax lien or tax levy. If you are dealing with a tax lien, you will want to work something out before it becomes a tax levy. Tax liens are often resolved by simply paying the amount owed or working out a payment plan. 

And if you find yourself dealing with a tax levy, you will need to respond as fast as possible to have any chance of saving your property.
Once the situation graduates to a tax levy, there is still an appeal process that you might be able to work through. Outside of that, bankruptcy may be the only other option to consider.

Regardless of what type of lien or levy situation you might be dealing with, speak with an experienced tax specialist Advanced Tax Solutions to get a complete understanding of your options.

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