They use the 1099 information that is sent from banks that pay you interest. The IRS sends levy to the banks that issued you a 1099. Then they levy up to the full amount of the tax balance due from your bank account. Most people that owe money for tax debt and are getting a bank levy owe more money than the total of the tax debt. So what happens is that the bank account goes to zero. In many cases, the bank also charges a fee and your account goes into the negative.
An IRS Tax Levy is when the IRS says you owe more than you have paid, and then after subsequent attempts to collect the total, they take it directly from your bank account. You will typically receive a series of notices prior to the levy. These will be letters with titles such as “Notice of Intent to Levy.” You may find out about all the letter notices from the IRS involving intents to levy here. These are also called “demand letters.”
The IRS may also issue levies against a wage, salary, or other income.
There are 3 legal conditions that the IRS must meet before taking the measure of issuing a levy:
There are also very rare, edge cases where the IRS will implement the levy without serving the prior Intent to Levy notice. These circumstances might involve cases where the IRS feels the collection effort will be in jeopardy (i.e. they suspect fraud), they plan to seize a state refund, or they might have already begun the process through other notices of intents to collect as well.
Usually the IRS has your bank information based on previous filings. However, all bank accounts may be found by their Social Security number, which the IRS always has anyway.
There are a couple of ways the IRS gets the information. The most common way is they look at who issued you a W-2 for the prior tax year. Then they send a garnishment to that employer.
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