What Property and Income Are Exempt From an IRS Levy?

An Internal Revenue Service (IRS) levy is a collection tool used to seize a taxpayer’s property to satisfy an outstanding tax debt. Unlike a lien, which is only a claim against property, a levy is the direct action of taking possession of assets. A federal tax lien secures the government’s interest in your property but does not transfer ownership.

The process begins after the IRS assesses a tax liability, sends a Notice and Demand for Payment, and the taxpayer neglects or refuses to pay. Before a levy can be issued, the IRS must provide a Final Notice of Intent to Levy and Notice of Your Right to a Hearing at least 30 days prior. This notice can be delivered in person, left at the taxpayer’s home or business, or sent by certified mail.

Specific Property Protected from Levy

Federal law outlines certain property that is exempt from an IRS levy. These exemptions are meant to ensure a taxpayer can maintain a basic standard of living even while subject to collection actions. The protections are not unlimited and have specific monetary caps that are subject to inflation adjustments.

The law exempts necessary personal items such as wearing apparel and school books without a value limit. It also protects a certain value of household goods, including fuel, provisions, furniture, and other personal effects, up to an aggregate value of $11,390. Similarly, books and tools necessary for a trade, business, or profession are exempt up to a specific inflation-adjusted value of $5,700.

Certain income sources and benefits are also shielded from levy, including:

• Unemployment benefits
• Workers’ compensation payments
• Undelivered mail
• Certain annuity and pension payments
• Specific service-connected disability payments
• Certain public assistance benefits

If a court has ordered a taxpayer to make child support payments before the levy was issued, the amount necessary to comply with that judgment is also exempt.

Principal Residence Protections

While a taxpayer’s principal residence is not entirely exempt from levy, it has protections. The IRS cannot seize a primary home to satisfy a tax liability of $5,000 or less. For larger tax debts, the IRS is prohibited from levying a principal residence without first obtaining written approval from a judge or magistrate of a U.S. district court. This judicial oversight ensures the seizure is a last resort.

The process requires the IRS to demonstrate that it has exhausted other reasonable collection alternatives before proceeding against a taxpayer’s home. This high procedural bar means that while the seizure of a primary residence is legally possible, it is an uncommon enforcement action. The IRS pursues other assets like bank accounts, investments, and other real estate before attempting to take a taxpayer’s home.

Calculating the Exempt Amount of Your Wages

When the IRS levies wages or a salary, it does not seize the entire paycheck. A portion of your income is protected to cover basic living expenses. The calculation for this exempt amount is determined by your filing status and the number of dependents you claim.

The exempt amount is based on the sum of the standard deduction and the value of personal exemptions you are entitled to claim. Although personal exemptions were suspended for tax calculation purposes by the Tax Cuts and Jobs Act of 2017, a deemed amount is still used for calculating the levy exemption. This total annual exempt amount is then divided by the number of pay periods in a year to determine how much of each paycheck is protected.

Your employer uses IRS Publication 1494, “Tables for Figuring Amount Exempt from Levy on Wages, Salary, and Other Income,” to make this calculation. For example, a single individual paid bi-weekly with no dependents would have a different exempt amount than a married individual with two children paid on the same schedule.

It is your employer’s responsibility to perform this calculation based on the information you provide. The exempt amount is paid to you, and the remainder is sent to the IRS. This process continues with each pay period until the tax debt is fully paid or the levy is officially released by the IRS.

How to Claim Levy Exemptions

When the IRS initiates a levy on your wages, your employer receives Form 668-W, “Notice of Levy on Wages, Salary, and Other Income.” To ensure the correct amount is withheld, you must take prompt action to claim the exemptions to which you are entitled.

Your employer is required to provide you with Part 3 of the Form 668-W, the “Statement of Exemptions and Filing Status.” You must complete this statement with your correct tax filing status and the number of dependents you will claim for the tax year.

You must complete and return this statement to your employer within three days. If you fail to return the form promptly, your employer is required to calculate your exemption as if you were married filing separately with no dependents. This default status results in the smallest possible exemption and the largest possible garnishment from your paycheck.

Once you return the completed Statement of Exemptions and Filing Status, your employer will use it for the next payroll period. This process will continue until the IRS sends your employer a Form 668-D, “Release of Levy/Release of Property from Levy,” officially ending the garnishment.