Michigan Tax Levy Overview: How to Release or Stop a Tax Levy
If you don't pay your state taxes, the Michigan Department of Treasury (MI DOT) has the right to levy your assets. A levy is when the state seizes your assets and uses them to reduce your tax debt. Also called a tax warrant, a levy is an involuntary collection practice.
This guide explains what to expect if the state issues a tax levy against you. It also outlines how to get a levy released. Then, it shows you how to get local, experienced help with your Michigan tax problems.
What Is a Michigan Tax Levy?
A Michigan tax levy is when the state seizes your assets. In Michigan, the state uses the term warrant as well as levy. These words can be interchangeable, but generally, the Michigan Department of Treasury uses the word warrant when it sizes personal or real assets. It uses the word levy when it seizes the funds in your bank account or garnishes your paycheck.
Michigan Notice of Intent to Levy
Before levying your assets, the state will send you a Notice of Intent to Levy. This explains the state's intention to levy your assets. It generally shows how much you owe in tax, interest, and penalties. Then, it tells you which type of levy the state plans to carry out against you.
Types of Tax Levies in Michigan
The Michigan Department of Treasury uses several different types of tax levies. As of 2022, the department adds a $55 fee to your account for each levy served. This can add up quickly if the state issues multiple levies against you. If you have unpaid state taxes, you may face the following types of tax levies in Michigan:
A wage levy affects your wags. The department will send you a notice ten days before sending the wage levy request to your employer. Once your employer receives the request, they must withhold all your wages over the exempt amount and send the money to the state.
Wage levies are continuous. They stay in effect until the tax debt is paid. Although you get to keep the exempt amount, it is not much. It's barely enough to cover most people's basic living expenses. The state takes everything over the exempt amount, including bonuses and commissions. Luckily, in Michigan, state law prohibits your employer from firing you if you have one or more wage levies against you.
If you have unpaid Michigan taxes, you may eventually hear the phrase "tax warrant." You're probably wondering, what is a tax warrant in Michigan? Well, a tax warrant authorizes the sheriff or another entity to seize your real or personal assets and sell them at auction.
When a tax warrant is issued against you in Michigan, the state will add collection fees and the cost of carrying out the warrant to your balance. This may include locksmith costs, towing company fees, storage costs, fees for advertising the auction, and personnel costs.
The state can also use a tax warrant to close your business and sell its assets. The department must notify you at least ten days before the property is seized. Generally, the state can't sell the business property until ten days after it's been seized, but it can sell perishable items within 24 hours.
Financial Institution Levy
A financial institution levy is when the state seizes the funds in your bank account. The state can seize any amount in your account up to the balance due on your state taxes.
This is a one-time levy. It attaches to the funds in your account when the bank receives the levy. It does not attach to future funds. However, the state does have the right to send multiple one-time levies to your financial institution.
Offset Refund Levies
An offset refund is when the state seizes your state or federal tax refund. The Michigan Department of Treasury has the right to seize these payments if you have a delinquent tax bill. Even if you're making payments on an installment agreement, the state has the right to seize your tax refunds and apply them to your balance.
Other Third Party Levies
If you have delinquent taxes, the state also has the right to levy assets held by third parties. This includes rent from tenants, payments from clients, or insurance proceeds as well as other assets.
For example, imagine that you owe delinquent Michigan taxes and you own a rental property. The MI Department of Treasury can instruct your tenants to send the rent directly to the agency to cover your tax bill. Again, the state will notify you ten days before sending the levy notice to the third party.
How to Prevent a Michigan Tax Levy
The best way to prevent a Michigan tax levy is to pay your tax liability in full or make payment arrangements with the Michigan Department of Treasury. If the department can see that you're making a good faith effort to pay your tax liability, it generally will not bring a levy against you. However, this varies based on the type of levy.
For instance, if you pay in full, the state will not bring any levies against you. If you set up a payment plan or apply for hardship status, the state will not levy your wages, bank accounts, or most assets. But it may still claim your IRS and state tax refunds. It can also claim lottery winnings and state vendor payments.
How to Release a Michigan Tax Levy
If you want to get a tax levy released, you need to pay the tax liability in full. Alternatively, you may be able to get a levy released if it was issued in error. For instance, if the department didn't send the correct notices or if the levy is against exempt assets, you may be able to get it released.
What If I Disagree With a Michigan Tax Levy
If you disagree with a tax levy, you have the right to appeal, but you may need to do so within a certain time frame. Generally, when the state sends you a Final Notice and Intent to Levy, you must appeal within the time frame noted on the letter.
If a levy is already in place, there may be certain actions that you can take if you disagree. In particular, if the levy was issued in error, you can reach out to the Department of Treasury to release the levy. You should contact a Michigan tax pro to guide you if you disagree with a tax levy.
What Assets Can the Department of the Treasury Levy in Michigan?
If you have delinquent taxes, the Department of the Treasury has the power to levy almost any of your assets, including your home. The state of Michigan follows the IRS's rules for deciding which assets are exempt from levy. Based on the Internal Revenue Code, Michigan cannot levy the following assets:
- School books and clothing.
- Fuel, provisions, furniture, other personal effects, and livestock and poultry for personal use, worth up to $6,250 in value.
- Books and tools that you use for your business, worth up to $3,125 in value.
- Unemployment benefits and workman's compensation.
- Undelivered mail.
- Certain annuities and pension benefits, including Railroad Retirement benefits and pensions for people whose names are on the Medal of Honor roll for the Army, Navy, Air Force, and Coast Guard.
- Court ordered payments (child support) for minor children.
- The exempt amount of wages needed to cover basic living expenses.
- Public assistance payments.
- Assistance from the Job Training Partnership Act.
- Personal residences (homes) if you owe less than $5,000.
Additionally, the department may refer your account to a collection agency or to the attorney general. Depending on the situation, these entities may also be able to levy your assets.
Michigan Tax Levy Versus Tax Lien
A tax levy is when the state seizes your assets. A lien, in contrast, is the state's legal right to your assets. Generally, a lien must exist before a levy.
Here's an example of the difference. If a lien is in place and you sell your vehicle, the state has the right to seize the proceeds from the sale. In contrast, if the state levies your vehicle, it seizes the vehicle and sells it at auction. At that point, the state has the right to the proceeds from the sale, but it will also add the costs of seizing and selling the asset to your balance.
Get Help With a Michigan Tax Levy
If the Michigan Department of Treasury has issued a levy against you or if you are worried about a levy, you need to talk with a Michigan tax professional. CPAs, tax lawyers, and enrolled agents can all represent you in front of the Department of Treasury and the IRS.
These professionals know the best steps to take to release Michigan tax levies and deal with other collection actions. They can help you choose the best path forward. Using TaxCure, you can search for tax pros based in Michigan, and you can filter your results based on experience with certain tax issues.
To learn more, contact a Michigan tax pro today. They can help you address the state tax levy and find the best resolution for your tax problems.