Federal Tax Lien vs. Levy — What's the Difference?

The fundamental difference

IRS liens and levies are both collection tools, but they do very different things:

A lien is a claim. It's the government's legal right to your property as security for a tax debt. A lien doesn't take anything—it establishes a legal interest that must be satisfied before you can sell or transfer property free and clear.

A levy is a seizure. It's the government actually taking your property to satisfy the tax debt. When the IRS levies your bank account, the money is frozen and then sent to the IRS. When they levy your wages, a portion goes to the IRS each pay period.

Think of it this way: A lien says "you owe us, and we have a claim on your stuff." A levy says "we're taking your stuff now."

How liens work

A federal tax lien arises automatically by operation of law when:

1. The IRS assesses the tax
2. The IRS sends a Notice and Demand for Payment
3. You fail to pay the full amount within 10 days

At this point, a lien exists—even if the IRS hasn't filed a public Notice of Federal Tax Lien (NFTL). The lien attaches to all property and rights to property you own or acquire until the debt is paid or becomes unenforceable.

When the IRS files a public Notice of Federal Tax Lien, the lien becomes a matter of public record. This puts creditors, lenders, and buyers on notice that the government has a claim against your property.

What the lien attaches to:

• Real estate (your home, investment property, land)
• Personal property (vehicles, equipment, valuables)
• Financial assets (bank accounts, investments, retirement accounts)
• Business assets and accounts receivable
• Future property you acquire while the lien is in place

How levies work

Unlike liens, levies require affirmative IRS action—and proper notice to you. The IRS can levy only after:

1. The tax is assessed and demand is sent
2. You neglect or refuse to pay
3. The IRS sends a Final Notice of Intent to Levy at least 30 days before the levy

When the IRS levies, it sends a notice to the party holding your property—your bank, employer, or other third party. That party must comply by turning over the property to the IRS.

Types of levies:

• Bank levy: One-time seizure of funds in your account at the moment of levy
• Wage levy: Continuous garnishment until debt is paid or levy is released
• Asset levy: Seizure of specific property (vehicles, equipment, etc.)
• Accounts receivable levy: Seizure of money owed to you by customers

Each levy is a separate action. A bank levy captures funds at one point in time. If you want to take more, the IRS must issue another levy.

When each occurs

Liens can arise relatively early in the collection process. Once you fail to pay after assessment and notice, the lien exists. The IRS may file the public notice:

• After balance due notices (CP14, CP501, CP503, CP504) go unanswered
• Before or during active collection
• To protect the government's interest before statute of limitations expires
• When you're in a payment plan (depending on balance and policy)

Levies typically occur later, after the notice sequence has been exhausted:

• After CP14, CP501, CP503, and CP504 notices
• After the Final Notice of Intent to Levy (Letter 1058, LT11, or CP90)
• At least 30 days after the final notice
• After Collection Due Process hearing rights have been exercised or waived

Key distinction: You can have a lien without a levy (the IRS has a claim but hasn't seized anything). You typically won't have a levy without a lien (the lien usually exists before the IRS takes enforcement action).

Side-by-side comparison

Impact on property and finances

Lien impacts

• Selling property: The lien must be satisfied at closing (paid from proceeds)
• Refinancing: Lenders see the lien and may deny or require satisfaction
• Credit (indirect): Lenders may find the lien in public records searches
• Business operations: May affect business credit, contracts, and licensing
• Property transfer: Property transfers subject to lien (buyer takes encumbered title)

Levy impacts

• Bank accounts: Funds immediately frozen, sent to IRS after 21 days
• Wages: Continuous garnishment reduces take-home pay significantly
• Cash flow: Immediate financial disruption
• Relationships: Employer knows about the levy (wage garnishment)
• Asset loss: Physical property can be seized and sold

In practical terms: A lien is a slow-burning problem that complicates financial transactions. A levy is an immediate crisis that takes money or property now.

Lien filing and notice

The IRS must notify you within 5 business days after filing a Notice of Federal Tax Lien. This notice (typically Letter 3172) informs you:

• A lien has been filed
• The tax periods and amounts covered
• Your right to request a Collection Due Process hearing
• Your right to request a hearing within 30 days

If you request a CDP hearing within 30 days, you can challenge the lien filing and discuss alternatives. After 30 days, you can request an equivalent hearing, but it doesn't have the same procedural protections.

Where liens are filed: The IRS files the NFTL in the county where you live (or where property is located) and/or with the state Secretary of State for personal property. This makes the lien public record and searchable.

Removing or resolving liens

Options for addressing a federal tax lien:

Lien Release

The IRS must release a lien within 30 days after the liability is fully paid or becomes legally unenforceable. This removes the lien entirely.

Lien Withdrawal

The IRS may withdraw the Notice of Federal Tax Lien (remove the public filing) while the lien itself still exists. This is possible when:

• The lien was filed prematurely or not in accordance with procedures
• You're in a Direct Debit Installment Agreement and meet certain requirements
• Withdrawal will facilitate tax collection
• It's in the best interest of the taxpayer and government

Lien Discharge

The IRS may discharge specific property from the lien—allowing you to sell that property free of the lien—while the lien remains on other property. Typically requires proceeds going to IRS or showing IRS interest is protected.

Lien Subordination

The IRS may agree to let another creditor's lien take priority. This is used when subordination will allow you to refinance or obtain financing that helps pay the tax debt.

Stopping or releasing levies

Options for stopping or releasing a levy:

• Pay in full: The levy is released when the debt is satisfied
• Installment Agreement: An approved payment plan typically results in levy release
• Offer in Compromise: If accepted, levies are released
• Currently Not Collectible: Demonstrating hardship may result in release
• CDP hearing: Requesting a timely hearing suspends levy action
• Economic hardship: Showing the levy prevents meeting basic living expenses
• Procedural error: If the levy was issued without proper notice

For bank levies: You have 21 days before funds are sent to the IRS. Act within this window to potentially recover the funds.

For wage levies: The levy is continuous. It remains until you take action to have it released or the debt is paid.