What is the Difference Between a Tax Lien and a Tax Levy?

Arian Azimzadeh
Expert Contributor
Last Updated:
At Solvable, we care about your financial well-being and are here to help. Our research, articles and ratings, and assessments are based strict editorial integrity. Our company gets compensated by partners who appear on our website. Here is how we get compensated.

Last Updated on

It’s the responsibility of every taxpayer to fully understand personal tax liability and to pay what they owe to the Internal Revenue Services (IRS) in a timely manner. Failure to do so may result in significant penalties, fines, and other tax hardships. In this article, we’ll discuss the issue of lien versus levy, and show how these two unique tax penalties affect average citizens.

After reading this guide, you’ll understand the main differences between liens and levies issued by the IRS. You’ll also be able to recognize the situations that warrant these penalties and foresee how to avoid them.

What is a Lien?

Legally speaking, a lien is any public record (filed officially with a local government office or clerk) that makes a claim against personal property to ensure that any debt is paid in full. Common types of liens include mortgages and car payments, in which a lender holds the lien until a loan amount is eventually paid completely.

When it comes to the IRS and federal taxes, liens are issued when the IRS assesses a tax against an individual that they cannot pay upon receipt. In this scenario, an IRS lien shows the federal government that the IRS has legal rights to the property for which the lien applies.

What is the Difference Between a Tax Lien and a Tax Levy?

Solvable Exclusive Offer

How Much Tax Debt Do You Owe?


What is a Levy?

A levy involves the legal seizure of a portion of personal property in order to settle unresolved debt which cannot be paid. Levies are ordered for personal property such as real estate holdings, personal items, vehicles, and cash assets.

See More >> This Guy Resolved His $8,597 Tax Debt - Learn His Methods!

The IRS generally issues levies after many attempts have been made to resolve a debt or settle an outstanding claim. Although issuing a levy is a serious action, debtors are often given advance notice and have the legal opportunity to respond before property is seized.

How are Liens and Levies Related?

While liens and levies are different in scope, they have similarities as well. From a federal tax standpoint, the IRS turns to liens and levies when:

  • A taxpayer is neglectful of personal tax responsibilities (including failing to file and pay taxes by annual deadlines)
  • An individual cannot pay their tax burden due to unforeseen or personal circumstances
  • A person is unresponsive to different forms of communication and outreach by the IRS

Liens and levies are both applied when there is unpaid debt. If you are up to date on all tax payments and responsibilities (for both present and past tax years), you should not have to worry about a lien or levy from the IRS.

Do Liens and Levies Influence Credit Score?

Sometimes, taxpayers and borrowers wish to know how a federal tax lien or levy changes their future credit score. Each situation is unique, but in general, liens and levies are different in terms of potential credit problems.

  • A lien impacts a borrower’s credit score because the legal notice is reported to credit bureaus. If you have several active liens, you may not be able to obtain new lines of credit.
  • A levy does not immediately impact a borrower’s credit score. Since a levy can be issued against paychecks and cash assets, the levy may indirectly affect one’s credit if the lack of cash creates a situation in which the borrower can’t make monthly payments as a result of a lack of cash or finances.

Why Does the IRS Issue Liens and Levies?

Generally speaking, the IRS issues a lien before turning to the process of issuing a levy. By filing a lien, the IRS is:

  1. Notifying you of your personal tax responsibility or liability after a full financial or tax assessment, and…
  2. Securing an interest in your property in the event that you can’t or refuse to pay

While these measures may sound drastic, they are standard processes of ensuring that debts are paid in some form. Whether that means seizing cash or selling a real estate holding, the IRS protects itself from outstanding debts.

See More >> How One Woman Crushed $300,000+ of Student Loan & Mortgage Debt

Can There Be Instances of Wrongful Liens or Levies?

If you’re navigating the world of a lien or levy from the IRS, it’s important to know that the government is required to notify any taxpayer when these official notices are filed publicly. A lien requires a Notice of Federal Tax Lien (NFTL), which is a documentation meant for the public record. If for some reason you do not receive an NFTL, you should pursue further action to verify the legitimacy of the lien.

With regard to levies, the IRS must issue a Final Notice of Intent to Levy. Similar to the NFTL, this is an official government document that gives the borrower or taxpayer the right to respond.

As you work through a lien or levy, consider each aspect of the communication you’ve received from the IRS and other public offices. Tax fraud and scams are rampant, so it’s wise to use caution and check facts whenever you’re settling a debt.

How to Avoid Trouble with IRS Liens and Levies

As you compare and research a lien versus a levy, keep in mind that these things can be avoided. The simplest way is to always know your tax liability, file your personal and business taxes on time, and pay owed amounts prior to deadlines.

Additionally, you should never ignore or throw away any form of written communication from the IRS. Although the language might seem intimidating, tax professionals and attorneys can help you navigate the lingo and avoid sharp penalties that affect your financial health for years to come.

Secure Tax Relief Options Today!

Perhaps you’re wondering whether you qualify for tax hardship assistance. Depending on how much you owe and other financial factors, the Tax Hardship Center is here to help. Plug in your personal financial information today to see whether you qualify.

See More >> Trustworthy Tax Relief Companies + Customer Reviews

If you’re looking for reliable tax assistance backed by a strong reputation that you can trust, we invite you to get in touch with the team at Tax Hardship Center today!

Arian Azimzadeh
Expert Contributor
Last Updated: