Difference Between Lien and Levy

Lien vs Levy
 

Any individual, firm, corporation, or legal entity will have to make a payment to their country’s government known as a tax payment. The funds that are collected through tax is the largest income that the government receives and is used for the running of government, investment, development, infrastructure, healthcare, public safety, law enforcement, etc. Failure to pay taxes is a punishable offence, and a government entity called the Internal Revenue Service (IRS) will issue tax liens and levies with the aim of obtaining taxes owed to the government. The terms lien and levy are clearly explained in the following article, and their similarities and differences and highlighted.

What is Lien?

A tax lien is an amount that is claimed by the government on an individual’s property/assets to secure tax payments. This means that the government has the rights to sell the individual’s property and claim tax payments from the proceeds in the event that the taxpayer defaults on his tax payments. A tax lien will be made publicly known, as the tax agency will file a claim alerting any potential buyers that, in the event that the property is sold, the proceeds will be claimed by the tax agency to recover unpaid taxes. A lien will last until taxes are paid off completely. Within 30 to 60 days of the tax payments being completed, the agency will remove the lien, and the property owner can sell the property.

What is Levy?

A tax levy will be imposed in the event that the tax payer fails to make tax payments or fails to work out a tax payment arrangement. In such an event, the tax agency will take measures to seize the assets/funds. The tax agency has the right to seize bank balances, assets, and even order employers to withhold part of the employee’s salary on a periodic basis until the debt is repaid. The tax agency will issue a notice of intent 30 days before the assets are seized, and once such a notice has been issued, the tax payer will have to pay his taxes, except in special circumstances in which the taxpayer can prove financial difficulty. The taxpayer does not have to pay the amount in one go, and can work out a system under which he can periodically make tax payments.

What is the difference between Tax Lien and Levy?

Tax liens and tax levies are closely related to each other in that they are both mechanisms used by tax agencies, to recover taxes that are owed to the government. However, the two are parts of an overall collection process, in which the tax lien will be imposed first, and the levy will be enforced later on if the tax payer continues to not make tax payments. A tax levy is more serious than a lien and can result in forceful seizure of property, which usually also lead to public embarrassment. A tax lien needs to be ordered in a court of law, however, no such order is required for a levy; a notice of intent is suffice.

Summary:

Lien vs Levy

• Failure to pay taxes is a punishable offence, and a government entity called the Internal Revenue Service (IRS) will issue tax liens and levies with the aim of obtaining taxes owed to the government.

• A tax lien is an amount that is claimed by the government on an individual’s property/assets to secure tax payments.

• A tax levy will be imposed in the event that the tax payer fails to make tax payments or fails to work out a tax payment arrangement.

• A tax levy is more serious than a lien and can result in forceful seizure of property.

• A tax lien needs to be ordered in a court of law, whereas no such order is required for a levy; a notice of intent is suffice.