What Are the IRS’s Collection Options?

When a tax liability is not paid, the Internal Revenue Service (IRS) can compel payment. The collection process begins after a tax is assessed and the taxpayer receives a Notice and Demand for Payment. If the taxpayer does not pay the full amount, the IRS can use several administrative collection tools to secure the debt. These methods are legally authorized and do not require the agency to first obtain a court judgment. Collection actions follow a series of notices with increasing urgency, so taxpayers should address their obligations promptly.

The Federal Tax Lien

A federal tax lien is a legal claim the government makes on a taxpayer’s property when they have an unpaid tax debt. This lien arises automatically by law after the IRS assesses the liability, sends a Notice and Demand for Payment, and the taxpayer fails to pay the debt in full. This statutory lien exists between the taxpayer and the IRS without any public filing and serves as the foundational security interest for the government in all of a taxpayer’s property.

The lien attaches to all property and rights to property belonging to the taxpayer, including real estate, personal property, and financial assets. It also attaches to any assets the taxpayer acquires after the lien arises. The lien is active for a ten-year period from the assessment date, meaning any new property obtained during this time becomes subject to the government’s claim.

To make its claim effective against other creditors, the IRS files a public Notice of Federal Tax Lien (NFTL). The NFTL is filed in local public records, like a county recorder’s office, to alert others that the government has a claim against the taxpayer’s property. Within five business days of filing the first NFTL, the IRS must provide the taxpayer with a written notice about their right to a Collection Due Process (CDP) hearing.

Filing an NFTL limits the ability to obtain credit, as it signals to lenders that the government has a priority claim on assets. The lien attaches to business property, including accounts receivable, which can disrupt operations. Selling property also becomes difficult because the government’s claim must be settled before a clear title can be transferred.

The Federal Tax Levy

A federal tax levy is the legal seizure of property to satisfy a tax debt. While a lien secures the government’s interest in a taxpayer’s property, a levy actually takes the property. The IRS can only initiate a levy after a tax lien is in place and after issuing a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. This notice must be sent at least 30 days before the levy can take place, informing the taxpayer of their right to request a Collection Due Process hearing.

If the 30-day waiting period expires without a hearing request or other arrangements, the IRS can seize assets. The agency can issue multiple levies over time to collect the full amount owed. The IRS has the authority to levy assets held by third parties, such as an employer or a bank.

Wage Garnishment

A wage garnishment is a continuous seizure of a portion of a taxpayer’s income. When the IRS levies wages, it sends a notice to the taxpayer’s employer, who is then legally obligated to send a part of each paycheck to the IRS. This continues until the tax debt is paid, the levy is released, or the collection statute expires.

A portion of a taxpayer’s income is exempt from the levy to provide for basic living expenses. This exempt amount is determined by the taxpayer’s standard deduction and the number of dependents they claim. The taxpayer must provide their filing status and dependent information to their employer. If they fail to do so, the exempt amount is calculated as if they were married filing separately with no dependents, resulting in a larger garnishment.

Bank Account Levy

The IRS can also levy a bank account. When a bank receives a levy notice, it must freeze funds in the taxpayer’s account up to the levy amount. Unlike a wage garnishment, a bank levy is a one-time seizure that captures only the funds available when the notice is received. Deposits made after that point are not affected by that specific levy.

Bank levies include a 21-day holding period. During this period, the bank holds the frozen funds but does not send them to the IRS. This window gives the taxpayer an opportunity to contact the IRS to resolve the tax issue and get the levy released, potentially by proving that the levy is causing an immediate economic hardship. If the levy is not released within the 21 days, the bank must surrender the funds to the IRS on the next business day.

Seizure and Sale of Property

The IRS can also physically seize and sell a taxpayer’s tangible assets. This collection method is often used when other methods have failed. The process involves seizing personal property, like vehicles or boats, and real property, such as a primary residence or land.

After the legal requirements for a levy are met, IRS Revenue Officers can take physical possession of the property. The IRS must then provide the taxpayer with a notice of seizure and information about the planned sale. The sale is conducted through a public or sealed-bid auction, with proceeds applied to the tax debt and associated costs.

Certain property is exempt from seizure to prevent undue hardship. Exemptions include necessary clothing, school books, a limited amount of furniture and household goods, and tools of a trade up to a specific value. A primary residence may also be exempt, but seizing it requires high-level IRS approval.

A taxpayer has a “Right of Redemption” to reclaim seized real property after it is sold. This right must be exercised within 180 days of the sale. To redeem the property, the taxpayer must pay the purchaser the original sale price plus interest calculated at a rate of 20% per year.

Other IRS Collection Methods

In addition to direct levies, the IRS uses several other programs to collect overdue taxes, often by intercepting payments from various sources before they reach the taxpayer.

• Federal Payment Levy Program (FPLP): This automated system continuously levies certain federal payments made to individuals or businesses with delinquent tax debt. It can intercept payments to federal contractors, some Social Security benefits, and federal employee retirement annuities. For ongoing payments like Social Security, the levy is limited to 15% of the payment amount.
• State Income Tax Levy Program (SITLP): Through this cooperative program with state tax agencies, the IRS can levy a taxpayer’s state income tax refund. If a taxpayer with a federal tax liability is due a refund from their state, the IRS can intercept that refund and apply it to their federal tax bill.
• Passport Revocation: The IRS can ask the U.S. Department of State to deny or revoke the passport of a taxpayer with a “seriously delinquent tax debt.” For 2025, this is a debt over $65,000 where a lien has been filed or a levy issued. The IRS must notify the taxpayer before this happens.
• Private Debt Collection Agencies (PCAs): The IRS uses private agencies for some overdue accounts. These PCAs contact taxpayers to set up payment plans but cannot take enforcement actions like liens or levies. The IRS will send a notice if an account is transferred to a PCA.