What Is the Income Levy?
A levy is the legal seizure of a taxpayer's property to pay a debt he owes, according to the Internal Revenue Service. The levy can be attached to his home, car, bank account, boat, tax refund, accounts receivables or income. This property includes wages, salaries, bonuses, commissions and payments from a retirement program.
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Criteria
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The income levy often occurs as a wage garnishment, in which the employer is required to withhold moneys from the debtor's income to satisfy the debt. Creditors need a court order to garnish wages but governmental institutions, such as the IRS and the state, do not need one. Still, governmental agencies must satisfy some legal criteria before implementing the levy. This includes sending the debtor a bill for payment due, and issuing a levy notice if the debtor still does not pay--or make arrangements to pay--the amount due.
The income levy can also occur indirectly, via a bank account levy. The debtor's bank forwards existing moneys from the debtor's account, which may include income, to the issuing institution.
Effect
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An income levy has a continuous impact. Generally, it attaches to present and future income until the debt is paid in full. Notably, a bank account levy attaches to moneys that are in the account at the time the levy is served. It does not impact funds the debtor deposits later. But, if she has her income direct-deposited into her account thereafter, the issuing institution can obtain another bank levy to have those moneys levied as well.
The income levy also affects royalty payments. For instance, a levy for a writer's royalty payments attaches to future sales of books already written and published. But it does not attach to books not yet written and published; a new income levy would have to be implemented in this case.
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Withholding
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Employers are required to adhere to the income levy. The ruling is time-sensitive and usually must begin with the next pay period after it is issued. The levy paperwork generally has instructions on how to make the withholding.
For instance, for an IRS wage levy, the employer must give the employee the Statement of Exemptions and Filing Status included in the levy paperwork. The employee should complete this form, indicating his filing status and exemptions. The employer must also use IRS Publication 1494 to determine the amount exempt from the levy. Notably, according to the U.S. Department of Labor, employers cannot withhold more than 25 percent of disposable income in most cases.
Considerations
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Under Title III of the Consumer Credit Protection Act, the employer cannot fire an employee because it receives a single levy against her. But, if she has more than one levy with the same employer, she is not protected against subsequent termination.
Release
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The income levy ends when the issuing institution releases the levy. This can stem from a number of reasons, such as the debtor has paid off the debt, he has appealed the levy and won, he has made other payment arrangements or the statute of limitations on collecting debt has expired (10 years from the levy assessment date).
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