Tax Levy: What It Means for Employers

What it means in practice

The IRS defines a levy as "a legal seizure of your property to satisfy a tax debt." It is not the same as a lien: a lien is a legal claim against property to secure payment, while a levy actually takes the property. The Internal Revenue Code says the term "levy" includes "the power of distraint and seizure by any means" (26 U.S.C. 6331(b)). In everyday speech a government also "levies" a tax when it imposes one, but a notice of levy in payroll means seizure. For an employer, the common case is a levy on an employee's wages, the focus of this entry.

Tax levy vs. garnishment. A court-ordered garnishment follows a creditor's court process and is capped by the Consumer Credit Protection Act (CCPA) at a percentage of disposable earnings. A federal tax levy is different in three ways. The IRS acts under its own statutory power by serving a notice of levy on the person holding the wages (26 CFR 301.6331-1(a)(1)). The CCPA limits do not apply to tax debts (15 U.S.C. 1673(b)(1)(C)). And instead of a percentage cap, the employee keeps a fixed exempt amount from a table, and everything above it goes to the IRS.

Before a levy reaches the employer. The IRS says it will usually levy only after it has assessed the tax and sent a bill, the taxpayer has not paid, the IRS has sent a Final Notice of Intent to Levy and Notice of Your Right to A Hearing at least 30 days before the levy, and the taxpayer has received advance notice of possible third-party contacts. A jeopardy finding lets the IRS skip the waiting periods (26 U.S.C. 6331(a) and (d)(3)). The employer is not part of these steps.

The notice the employer receives. The IRS generally uses Form 668-W(ACS) or 668-W(ICS) to levy an individual's wages, salary (including fees, bonuses and commissions) or other income, and Form 668-A for other property a third party holds, such as bank accounts and business receivables. Publication 1494 is mailed with the wage levy. A notice of levy may be served by mail, and the date and time it is delivered is when the levy is made (26 CFR 301.6331-1(c)). Each form shows a "Total Amount Due" figured through a stated date; interest and penalties keep accruing after that date, and the IRS says the updated payoff figure cannot be released to the employer.

How a wage levy works, step by step. (1) The employer gives the employee the Statement of Dependents and Filing Status included with the levy, to complete and return within three days. (2) If it is not returned in three days, the exempt amount is figured as if the employee is married filing separately with no dependents. The Internal Revenue Manual says the employer uses this statement rather than the employee's Form W-4, because withholding claims can differ from return claims (IRM 5.11.5.4.1). (3) The employer looks up the exempt amount in Publication 1494 for the pay frequency, filing status and number of dependents. (4) On each payday, the employer pays the employee the exempt amount and pays the rest of the wages that would otherwise go to the employee to the IRS, on the same date it would otherwise have paid them (26 CFR 301.6331-1(b)(1)). (5) The employer keeps doing this until it receives a release. The IRS says employers generally have at least one full pay period after receiving the levy before any funds are due.

How the exempt amount is built. Under 26 U.S.C. 6334(a)(9) and (d), part of an individual's wages is exempt from levy. The regulation sets the exempt amount as the standard deduction (including the additional amounts for age or blindness) plus an amount for dependents, divided by 52 for weekly pay, 26 for biweekly, 24 for semimonthly, 12 for monthly or 260 for daily pay (26 CFR 301.6334-3). For 2026, Rev. Proc. 2025-32 lists standard deductions of $16,100 for single filers and married filing separately, $24,150 for heads of household and $32,200 for married filing jointly, and sets the dependent amount used in the levy formula at $5,300. That is why the 2026 single weekly figure is $309.62 ($16,100 divided by 52) and each dependent adds $101.92 a week. Publication 1494 also has a table of additional amounts for taxpayers at least 65 or blind, and amounts needed to pay court-ordered child support entered before the levy are exempt as well (26 U.S.C. 6334(a)(8)). The exempt amount uses the figures for the year the levy is served and stays the same unless the employee submits a new statement (26 CFR 301.6334-3(e)); the IRS says an employee may do so when a levy continues into a new year.

Take-home pay, not disposable earnings. The Internal Revenue Manual says a levy legally attaches to gross income minus the exempt amount, but by IRS policy it reaches only the employee's usual take-home pay. Existing deductions generally continue, voluntary deductions so large they defeat the levy can be disallowed, and employers generally should not allow new voluntary deductions after receiving the levy without IRS approval (IRM 5.11.5.4.5). See payroll deduction and net pay for how take-home pay is reached.

Bonuses, severance and irregular pay. For wage levy purposes, salary or wages include fees, commissions, bonuses and similar items (26 CFR 301.6331-1(b)(1)). The IRS says that when a bonus is paid separately from the paycheck, the IRS receives the entire bonus, because the exempt amount is tied to the time period the pay covers. The IRM says severance attributable to a period of time gets the exempt amount for that period, while a lump sum not tied to a period gets one regular pay period's exempt amount, and never twice for the same payday (IRM 5.11.5.4.6). For one-time or irregular payments, the regulation multiplies the weekly exempt amount by the number of full weeks the payment covers, up to 52 (26 CFR 301.6334-3(d)(3)). See supplemental wages for how these payments are taxed.

Employees with more than one source of income. If an employee has other income the IRS has not levied that is at least the exempt amount, the IRS may tell the levied employer that no amount is exempt, and the employer may rely on that notice. Without such a notice, the employer figures the exempt amount as if it were the only source of income (26 CFR 301.6334-2(c)). The IRM says the IRS uses Letter 1697 for this purpose (IRM 5.11.5.4.4).

When the levy ends. When the tax on the levy is paid in full, the IRS issues Form 668-D, Release of Levy/Release of Property from Levy, and it may also release a levy if the taxpayer makes other arrangements. The IRS says it must release a levy in listed cases, including full payment, an installment agreement that does not allow the levy to continue, and economic hardship. The regulation adds that a continuing wage levy must be released at the end of the collection limitations period, normally ten years without suspensions (26 CFR 301.6343-1(b)(1)). For monitored levies, the IRM says the IRS sends Form 668-D about one month before the account is paid in full, telling the employer the amount needed to finish (IRM 5.11.5.6.2).

Employer liability and protection. Anyone who fails or refuses to surrender levied property on demand is liable in their own person and estate for its value, up to the tax on the levy, plus costs and interest; for a continuing wage levy, interest runs from the date the wages would otherwise have been paid. A further 50% penalty applies without reasonable cause, though the regulation says it does not apply where there is a bona fide dispute over the amount or the levy's legal effect (26 U.S.C. 6332(d); 26 CFR 301.6332-1(b)). The "person" can include an officer or employee of a corporation who has the duty to surrender (26 U.S.C. 6332(f)). If an employer refuses, the IRM says the IRS may serve Form 668-C, Final Demand for Payment, and allow 5 days to respond before enforcement (IRM 5.11.2.2.9). On the other side, an employer that honors the levy is discharged from any obligation to the employee and anyone else for the amounts surrendered (26 U.S.C. 6332(e)).

Firing an employee over a levy. The IRM says an employer that fires an employee to avoid handling a levy might violate 15 U.S.C. 1674, which carries a fine of up to $1,000, imprisonment of up to one year, or both, and that the Department of Labor, not the IRS, decides whether the law was violated (IRM 5.11.5.2).

Example 1: weekly pay (illustration). A single employee paid weekly returns the statement claiming two dependents. The 2026 exempt amount is $513.46. If the employee's usual take-home pay is $1,050.00, the employer pays the employee $513.46 and sends $536.54 to the IRS each week until it receives a release.

Example 2: statement not returned (illustration). A biweekly-paid employee does not return the statement within three days, so the employer uses married filing separately with no dependents: $619.23. On take-home pay of $1,800.00, $1,180.77 goes to the IRS. If the employee later returns a statement claiming head of household with one dependent, the exempt amount becomes $1,132.70 and the levy payment drops to $667.30.

Example 3: the IRS's own example. Publication 1494 says a single taxpayer paid weekly with three dependents has $615.38 exempt. If that taxpayer is over 65 and writes 1 in the additional standard deduction space, $654.80 is exempt ($615.38 plus $39.42).

Where states differ. States collect their own tax debts under their own rules. As one example, the California Franchise Tax Board issues an Earnings Withholding Order for Taxes (EWOT), FTB 2905, for past-due income tax. Its employer page says to give the employee a copy within 10 days, send an acknowledgment, make the first payment within 15 days of the last pay period, and keep paying until the balance is paid. Unlike the IRS table, the FTB amount works like a percentage cap: after subtracting federal income tax, Social Security, state income tax and state disability insurance, the employer sends nothing on weekly pay of $217.50 or less and 25% on weekly pay of $290.01 or more. The FTB's collection hierarchy says that if an IRS levy already takes 25% or more of the employee's earnings, the employer does not pay the FTB order for now and returns part 2 within 15 days. The FTB also says it may hold the employer responsible for the debt if it does not comply. Check your own state tax agency for its rules.

Question: Does the levy reach wages earned before it arrived? Yes, if they are not yet paid. The regulation says a wage levy attaches to wages earned but not yet paid when the levy is made, to later advances, and to wages that become payable afterward (26 CFR 301.6331-1(b)(1)).

Question: Is a tax levy an employer tax? No. A levy collects the employee's own tax debt from wages. It is separate from the taxes the business owes on its payroll (see employer payroll taxes) and from routine federal income tax withholding.

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