What is a tax levy?
A tax levy is legal action taken by the IRS or state tax authorities to seize assets from individuals or businesses with unpaid tax debts. Unlike a tax lien, which is a claim on property, a levy actively takes money or property to satisfy the outstanding debt.
For businesses using Homebase payroll, understanding how tax levies impact payroll is essential to ensuring compliance and avoiding penalties. Homebase simplifies payroll processing by automating tax withholdings, helping businesses handle levies correctly.
How does a tax levy work?
When an employer receives a tax levy notice, they are legally required to withhold a portion of an employee’s wages and send it directly to the IRS or state tax authority. Levies can also apply to:
- Bank accounts – Funds may be frozen and withdrawn.
- Accounts receivable – The IRS may collect from a business’s outstanding invoices.
- Real estate or personal property – Assets may be seized and sold to cover the tax debt.
Employers must comply with the levy notice and ensure the correct amounts are withheld and sent to the appropriate agency.
What steps should employers take after receiving a tax levy notice?
Employers must follow specific steps when handling a tax levy on an employee’s wages:
- Review the levy notice carefully – The IRS or state agency will outline how much should be deducted and where to send payments.
- Notify the employee – Employees should be informed about the levy and provided with details.
- Determine the exempt portion of wages – Employers must use IRS Publication 1494 to determine how much of an employee’s wages are exempt from garnishment.
- Send payments to the tax agency – The withheld amount must be sent to the IRS or state agency as directed.
- Continue withholding until notified – Employers must keep sending payments until they receive a levy release notice.
How does this levy impact employees?
A tax levy can significantly reduce an employee’s take-home pay, making it harder to cover living expenses. Employees facing a tax levy can:
- Contact the IRS or state tax agency to arrange a payment plan.
- Seek professional tax assistance to negotiate a settlement or hardship exemption.
- Submit financial hardship documentation if they cannot afford the levy amount.
Employers should handle tax levies professionally and confidentially to support affected employees while complying with the law.
Simplifying tax levy management with Homebase
Managing tax levies manually can be time-consuming and complex. Homebase payroll helps businesses stay compliant by:
- Automatically calculating and withholding levy amounts based on tax agency guidelines
- Ensuring timely payments to the IRS or state authorities
- Maintaining detailed payroll records for compliance and reporting
- Simplifying payroll tax management so that businesses can focus on their operations
Staying on top of payroll tax requirements doesn’t have to be a burden. Learn more about how Homebase can help you manage payroll efficiently.