Understanding the IRS Notice of Levy on Wages, Salary, and Other Income
Receiving a letter from the IRS can be scary, but it’s important to understand what it means and what steps to take. If you’ve received IRS Letter 668(W), you are not alone, and it’s time to take action. This notice is a clear sign that the IRS is taking steps to collect back taxes you owe, by reaching directly into your pay. Let’s break down exactly what this means for you.
What is a Levy?
Before diving into the specifics of IRS Letter 668(W), let’s define what a “levy” means in the context of taxes. Simply put, a levy is a legal seizure of your property to pay an outstanding tax debt. When the IRS sends a levy, they are essentially taking ownership of a portion of your assets to satisfy what you owe. The IRS can levy different types of property, including:
- Bank accounts: They can seize funds from your checking and savings accounts.
- Wages and other income: They can take a portion of your paycheck, Social Security benefits, or any other income stream.
- Real estate: In some cases, they can seize and sell your home or other properties.
- Personal property: They can also seize valuable personal items like cars or jewelry.
A levy is different from a lien. A lien is a legal claim against your property, which makes it difficult to sell or borrow against. A levy is the actual seizure of your property. Think of the lien as putting a “hold” on your property and the levy as actually taking the property to pay off your debt.
The Meaning Behind IRS Letter 668(W)
Specifically, IRS Letter 668(W) is a notice of levy on wages, salary, and other income. This means that the IRS has informed your employer or whoever pays you regularly, to send a portion of your payment directly to the IRS until your tax debt is settled. The IRS is not randomly doing this; they’ve given you other chances to pay your tax debt. They will first send you a notice of the taxes you owe and then a notice of their intention to levy your wages if you don’t respond, so receiving Letter 668(W) means they’ve followed specific legal procedures.
What triggers a Letter 668(W)?
Typically, several things need to happen before the IRS issues this type of levy:
- Unpaid Taxes: You must have a tax debt that is past due.
- Initial Notices: The IRS will usually send you multiple notices, like a CP14 notice, explaining that you owe taxes and requesting payment.
- Notice of Intent to Levy: Before the levy, the IRS should send you a formal “notice of intent to levy”. This gives you a final chance to contact the IRS to work something out.
- Failure to Respond: If you ignore these notices or fail to make arrangements for payment, the IRS may proceed with the levy.
What information is included in the Notice?
The IRS Letter 668(W) will include very specific details, so make sure to read it carefully. It should include:
- Your Name and Address: Clearly states who the letter is for.
- Tax Identification Number: Your Social Security Number or Employer Identification Number.
- Tax Period: The specific year or tax period for which you owe.
- Amount Owed: The exact amount of the outstanding tax debt, including penalties and interest.
- Levy Instructions: Instructions for the employer or other income source on how to send a portion of your wages directly to the IRS.
- Contact Information: Contact information for the IRS so you can ask questions or address this issue.
- Your Rights: A summary of your rights and how to appeal the levy.
How Does a Wage Levy Work?
Once the IRS sends the 668(W) letter to your employer or income source, they are legally obligated to comply. They will start withholding a certain portion of your income every pay period and send it directly to the IRS. Here’s how it usually works:
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Employer Notification: The IRS sends a copy of the Letter 668(W) directly to your employer (or the income source). This letter informs them of their legal responsibility to comply with the levy.
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Withholding Process: Your employer will calculate the amount of your paycheck that they have to send to the IRS. This amount is based on a percentage of your disposable income, which is your income after certain deductions such as state and local taxes. There are federal guidelines that limit how much of your wages can be taken so that you can still pay essential living expenses.
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Direct Payments to IRS: Your employer will then send these funds directly to the IRS until your tax debt is fully paid or the levy is released.
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Levy Continues: The wage levy will continue until either your tax debt, plus penalties and interest, are fully paid, or until the IRS releases the levy, often after you’ve made other payment arrangements.
Who is Affected by the Notice of Levy?
The Notice of Levy on Wages, Salary, and Other Income (IRS Letter 668(W)) affects taxpayers who:
- Owe Back Taxes: If you haven’t paid your federal income taxes, or payroll taxes, or other taxes to the IRS, you are at risk of receiving a wage levy.
- Have Received Multiple Notices: You probably received a series of IRS notices regarding your tax debt. The wage levy usually follows other warnings from the IRS.
- Have Not Taken Action: You have likely failed to respond to the initial notices or arrange a payment plan, causing the IRS to escalate their collection activities.
This levy can affect anyone who receives regular income such as:
- Wages and Salary Earners: The most common target of a wage levy.
- Self-Employed Individuals: The IRS can levy payments from clients.
- Retirees: They may be able to levy Social Security benefits or pension payments.
What to do if you receive a Notice of Levy?
Receiving IRS Letter 668(W) can be overwhelming, but the most important thing to remember is not to ignore it. Here’s what you should do:
- Read the Letter Carefully: Understand the exact amount you owe, the tax year, and the deadline.
- Contact the IRS: Call the IRS using the number on the letter, or reach out to a tax professional. This should be your priority. It’s best to be proactive and address the issue as soon as possible.
- Verify the Debt: Ensure the debt is accurate, or if you have a concern that you might not actually owe this debt, talk to them about it.
- Explore Payment Options: Discuss available payment options with the IRS. These could include:
- Payment in Full: If you can pay it, the easiest way to resolve it is to simply pay the amount owed.
- Installment Agreement: Set up a monthly payment plan to pay off the debt over time.
- Offer in Compromise (OIC): Propose to settle the debt for a lower amount than you owe. This is not usually approved, but it is worth exploring.
- Temporarily delay collection due to hardship If you can demonstrate that you cannot meet your basic living expenses, the IRS may allow you to temporarily delay collection until your situation improves.
- Request a Levy Release: Once you’ve made a payment arrangement, you need to request that the IRS release the wage levy. This will require communication and paperwork with the IRS.
- Keep Records: Maintain meticulous records of all communication, payments, and agreements with the IRS. This can be useful if you need to reference these interactions later.
- Seek Professional Help: A tax professional can guide you through the process, negotiate with the IRS, and help you find the best solution for your unique circumstances.
Related Concepts/Terms
Understanding other tax terms related to the Notice of Levy can help you navigate your situation:
- Tax Lien: A legal claim against your property. This is different from a levy, which is the seizure of property.
- Notice of Intent to Levy: The IRS will send you this notice before issuing a levy.
- IRS Form 668-D: A release of levy, which can be issued if you resolve the tax debt.
- IRS Installment Agreement: A plan to pay off your tax debt over time.
- Offer in Compromise (OIC): An agreement with the IRS to settle your tax debt for a lower amount.
- Penalty and Interest: Charges added to your tax debt if you don’t pay it on time.
Common Mistakes/Misconceptions
- Ignoring the Notice: One of the biggest mistakes is ignoring the letter. This will not make the issue go away and could result in more serious actions, like the seizure of your property, or increase in the penalties and interest.
- Thinking it’s a Mistake: While mistakes can happen, it’s more likely that you do owe the debt. You should immediately call the IRS and verify the debt.
- Not exploring payment options: The IRS usually wants to work with you to get the debt paid, so they have a variety of payment options that you might be eligible for.
- Thinking the levy will stop automatically: After you enter an agreement with the IRS, you still need to ask them to release the levy on your wages, it doesn’t just stop on its own.
Final Thoughts
Receiving a Notice of Levy on Wages, Salary, and Other Income (IRS Letter 668(W)) is a serious matter. It indicates that the IRS is taking active steps to collect outstanding taxes. By acting quickly, communicating with the IRS, and exploring payment options, you can resolve the issue and avoid further financial distress.