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Resources:
Tax Education: Exemption
from Levies What
is exempt from IRS levies?
What is exempt from IRS
levies? To put it succinctly: not much.
Wages. Take
wages for example. While a certain amount of wages is exempt
from IRS levy, the amount exempt is not enough to live on no
matter how frugal you might be. The annual exemption from a
wage levy is equal to the standard deduction on your tax return
plus the exemptions under Code Section 151 from your tax
return. If you get paid weekly or monthly, the annual levy
exemption is prorated over your pay period. It’s peanuts,
unless you have justifiably filed many personal exemptions on
your 1040 return and your wages are extremely low.
Fuel, Provisions,
Furniture, and Personal Effects. These items are exempt but
only up to $6,250 (adjusted for increases in the cost of living
after 1999).
Books and Tools of a
Trade, Business or Profession. These items are exempt but
only up to $3,125 (adjusted for increases in the cost of living
after 1999). For tangible property used by an individual in a
trade or business that is above the exemption amount, the
District Director must first personally approve the levy after
determining that other assets are insufficient to pay the tax
liability. This requirement of the District Director is
removed, however, in cases where the IRS thinks the taxpayer is
about to hide assets (“jeopardy”).
Unemployment Benefits.
Unemployment benefits are exempt, but only in the hands of the
agency making the payments. The statute reads “Any amount
payable to an individual with respect to his unemployment. .
. . .” 26 U.S.C. § 6334 (a) (4) (emphasis added), Once the
unemployment benefit has actually been paid, it is fair game for
an IRS levy. Spend it quickly!
Undelivered Mail.
Go figure.
Workmen’s
Compensation. Workmen’s Compensation is exempt, but only
while payable to the taxpayer. This is the same trap as
in the case of unemployment benefits.
Annuities and Pension
Payments. But read further. The deferred compensation
payments are exempt only if payable (that word again) by
the Army, Navy Air Force, Coast Guard Medal of Honor, or under
the Railroad Retirement Act or Railroad Unemployment Insurance
Act. There is a persistent myth that retirement plans and IRAs
(Individual Retirement Accounts) are exempt from IRS levy. For
the vast majority of us, that is simply not true. 26 U.S.C. §
6334 (a) (6). And even for the lucky few, the retirement
benefits are subject to levy once they have been paid to the
retiree.
Judgments for the
Support of Minor Children. One can guess that Congress has
a soft spot for hungry children. Wages and other income (but
not assets) needed to support this obligation are exempt.
Service Connected
Disability Payments. The classic example here would be
disability benefits payable by the Veterans Administration. But
again, the key word is “payable.” Once the disability has been
paid and in the hands of the tax debtor, the disability benefit
is fair game for levy.
Public Assistance
Payments. We are talking welfare here. Amounts payable
for supplemental security income for the aged, blind and
disabled under the Social Security Act and state or local public
assistance programs that are based on a need or income test.
Job Training
Partnership Act Payments. Payments under the Jobs Training
Partnership Act (29 U.S. C. 1501, et seq., are exempt.
Residences in the
Case of Small Deficiencies. If your total tax bill
including tax, penalties and interest is under $5,000, the IRS
cannot levy on your residence.
Residences in the
Case of Bigger Deficiencies. If your total tax bill
including tax, penalties and interest is over $5,000, the IRS
must first obtain judicial approval in federal district court to
approve the levy. This is a hassle for the IRS, but certainly
is not an insurmountable problem.
For more information contact
us at taxhelp@taxdefendant.com
or
Toll Free 866-216-1930
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