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Bank Levy vs Wage Garnishment: Understanding the Differences

Bank Levy
  • Bank levy is a one-time seizure of funds from a bank account to fulfill unpaid tax obligations.
  • Resolving a bank levy case before funds are remitted by the bank is crucial, as it is more difficult to get funds refunded after remittance.
  • Revenue Officers are typically assigned to cases with large balances, and they may resort to bank levies as a collection method.
  • Consulting a professional tax firm like HTR can help prevent levies, get them released, and even recover levied funds.
Wage Garnishment
  • Wage garnishment is a continuous deduction of a portion of an individual's wages to satisfy unpaid taxes.
  • The IRS and most states cannot garnish more than 25% of an individual's net wages.
  • Social security income can only be garnished up to 15%.
  • If wage garnishment exceeds the legal limits, it is a violation of the law, and taxpayers should contact the appropriate authorities immediately.
Differences between Bank Levy and Wage Garnishment:
Bank Levy Wage Garnishment
Frequency One-time Continuous
Maximum Deduction No specific limit 25% of net wages (varies by state)
Limit for Social Security Income No specific limit 15%
Actions if Violation Occurs Contact a professional tax firm or appropriate authorities immediately Contact the appropriate authorities immediately

Note: It is important to consult a tax professional or contact appropriate authorities to understand the specific rules and regulations regarding bank levies and wage garnishments in your jurisdiction.

IRS Notices and Codes for Preventing Levies:

Responding to IRS notices in a timely manner is crucial to prevent levies. The following table highlights some common IRS notices and their corresponding codes:

Notice Code Description
CP501 Reminder - Balance Due Initial notice sent to taxpayers to inform them of their unpaid taxes.
CP503 Second Reminder - Balance Due Follow-up notice sent if the taxpayer fails to respond to CP501.
CP504 Final Notice - Balance Due Final notice sent if the taxpayer still doesn't respond to CP503. It warns of potential levy actions.
LT11 Pre-Levy Notice Notice sent by certified mail, indicating the intent to levy a taxpayer's assets if the balance remains unpaid.

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