Tax terminology can get very complicated very quickly with all of the financial and bureaucratic language involved. It’s important to know what tax terms mean, though, so that you are empowered to understand your tax situation and to make informed decisions about your financial future.
Two tax terms that often get confused are “tax lien” and “tax levy.” While these terms are related, they differ in key ways. Read on to learn more!
What Is a Federal Tax Lien?
If you owe a tax debt to the IRS, they’ll contact you to let you know how much you owe and what you need to do to settle the debt. If you ignore this notice or fail to pay your debt, the IRS will most likely move forward with filing a federal tax lien.
A tax lien is put into effect when the IRS files a public document called a Notice of Federal Tax Lien. This document becomes part of your financial profile and alerts all creditors, banks, and credit reporting agencies that the federal government has a right to your property and assets because you have not paid or made arrangements to settle your tax debt.
Having a lien filed against you negatively impacts your credit score and serves as a red flag to creditors and financial institutions that you have not paid a debt. This can cause difficulty accessing credit and loans, which can have a big impact on your day-to-day life.
What Is a Federal Tax Levy?
If the IRS files a lien against you and you do not take action to pay your debt, the next step is that the government can actually take your property or assets. This is a levy. A federal tax levy allows the government to take your property and assets and any property or assets in which you have an interest. This means any property or businesses you own or have a stake in are subject to seizure.
While going into the details of these tax terms may sound scary, the goal is to make sure you’re armed with information in case you ever encounter them. If you or someone you know is dealing with a tax lien or levy—or, if you just want to know more about how they work—reach out to Pro Tax Resolution, your local tax experts in Arlington. We are here to help. Call us today to learn more or to schedule a consultation.