If an individual defaults on federal taxes, the IRS can legally levy the person’s wages and even seize the individual’s property, state refunds due, or bank accounts. If a taxpayer does not pay their tax debt or make payment arrangements with the IRS, the lengthy process of collection may begin. The IRS may try to recover wages unpaid taxes through the person’s employer. In such cases, employers are bound by the law to help IRS in recovering defaulted taxes.
According to the tax code, if a party fails to respond to a levy notice, the IRS can hold them responsible for unpaid taxes and interest. The employer may also end up paying an additional penalty equivalent to 50% of the tax due.
On receipt of an IRS levy notice, the company must take immediate action. The notice will detail steps that need to be taken. These include informing the employee about the levy, getting the Statement of Exemptions filled by the individual, and filing status documents. The employee has three days to file and submit the documents. Once the status documents are filed, the withholding process can be initiated. Based on the value of unpaid taxes, withholding may be required only on a single paycheck or continued over multiple pay periods until the levy is released.
A tax levy may end when the employee pays the debt, the time limit expires, or the IRS releases the levy.
For more information on handling levies, refer to the Internal Revenue Service.