How Virginia Liens & Levies Work and How to Stop or Remove
If you have unpaid state taxes, Virginia Tax can issue a lien or levy against you. The Commonwealth of Virginia has the right to forcibly take your money and assets for unpaid state taxes. This guide to Virginia tax liens and levies explains how they work, what to expect, and how to stop or remove these collection actions.
What Are Virginia Tax Liens?
In Virginia, a tax lien is when the state takes your assets to cover unpaid taxes. A wage lien is when the commonwealth seizes your wages. A bank lien is when the commonwealth seizes the funds in your bank account. A memorandum of lien is when the commonwealth secures its interest in your real or personal property. Here are the details about the different types of Virginia state tax liens.
Wage Liens in Virginia
If you have unpaid state taxes, Virginia Tax has the right to withhold up to 100% of your net wages. The state will send a letter to your employer instructing them to garnish your wages. Your employer must comply with this request — generally, people who don't comply with wage lien requests risk becoming personally liable for the tax debt.
Your employer will continue to garnish your wages until you have paid the balance in full, including penalties and interest. In most cases, your employer won't be able to see your balance. They will continue the wage lien until they get a notice that the lien has been removed.
Bank or Other Institution Liens for Virginia State Taxes
Virginia Tax also has the right to issue a bank lien against you. The tax agency will send a notice to your bank asking them to put a lien on the funds in your account. The commonwealth can seize the entire balance in your account up to the amount of your state tax debt.
The commonwealth can also seize the funds from certain investment accounts. In these cases, the process works the same. Virginia Tax sends a lien notice to the institution that holds your investment account. Then, the institution seizes the funds and sends them to Virginia Tax.
By law, banks and other financial institutions are required to abide by these lien requests. They can't ignore the request and tell you to withdraw your funds before the lien goes into effect. They must put a hold on the funds and then send them to the state.
A memorandum of lien is when the Virginia Tax issues a public notice that you have an unpaid state tax bill. The Tax Commissioner issues the memorandum in the circuit court clerk's office in the county where you live or do business in. If you don't have a business or residence in Virginia, the commissioner will file the memorandum with the Circuit Court of the City of Richmond.
With a memorandum of lien, the state doesn't seize your assets, but it secures its legal right to your assets. To give you an example, imagine there is a memorandum of lien against you and you sell some property that you own. The state has the legal right to the proceeds of the sale. In fact, the proceeds from the sale (up to the amount of the lien) will go directly to Virginia Tax. They won't go to you.
Memorandums of lien stay in effect for 20 years. The state may be able to issue a new lien when the existing lien expires.
Tax Refund Seizures
If you have unpaid taxes, the Commonwealth can seize your state tax refund. Virginia Tax can also send a notice to the IRS, and the IRS will send your federal refunds to the state. On the flip side, Virginia Tax can send your state tax refunds to the IRS if you have unpaid federal taxes.
Tax refund seizures aren't just for tax debts. If you have unpaid bills to the VA Department of Social Services, other Virginia state agencies and courts, local Virginia governments, and some federal agencies, the commonwealth can keep your tax refund and apply it to your debts. This is called the VA refund offset program.
What to Expect When Virginia Tax Issues a State Tax Lien
Virginia Tax must send you a Notice of Tax Lien and Demand for Payment 10 days before issuing a lien against you. However, the law does not require 10 days' advance notice if the tax collection is in jeopardy. In other words, if Virginia Tax believes that it may not be able to collect the tax unless it acts quickly, it doesn't have to give you notice before issuing a state tax lien.
After issuing a tax lien against a business, Virginia Tax has the right to padlock the doors of the business if it's in the best interest of the Commonwealth. The state will also place a notice of distraint on the business's doors.
Do not enter your business if it has been padlocked by Virginia Tax. Entering a padlocked business in this situation is a criminal misdemeanor. Contact the state as soon as possible to make arrangements on your business tax debt. If the tax continues to be unpaid, Virginia Tax can issue a writ of fieri facias. This gives the sheriff the right to seize your property and auction it off.
What to Do If You Disagree With a Virginia Tax Lien
If you disagree with the tax bill that led to the tax lien, you should apply for a correction of assessment. If you think there was an error in the lien filing process, you can appeal. The Tax Commissioner has 14 days to review the appeal. If there was a mistake, they have seven days to release the lien.
If your business has been locked up due to unpaid taxes and you have filed a correction of assessment, you can post a bond worth the amount of the tax liability. The bond can take the place of the payment until the state responds to your request for correction of assessment.
What If a Virginia State Tax Lien Is Causing Financial Hardship?
If the lien creates a financial hardship for you, you can ask the state to remove the lien. Virginia Tax will only remove liens for hardship if you have filed your taxes for the last three years. You also must complete a financial statement.
To request hardship relief on a state tax lien, contact Virginia Tax using one of the following methods:
Mail: Office of Compliance
PO Box 27407
Richmond, VA 23261-7407
How to Remove a VA Tax Lien
Once a VA tax lien has been issued, it can be hard to remove. The best option is to make arrangements on your unpaid tax bill before Virginia Tax issues a lien. However, if there is already a lien in place, you may be able to remove it using one of the following methods:
Pay Your VA Tax in Full
If you pay your VA tax bill in full, the state will remove all of the tax liens against you. Paying your tax bill in full is the most effective way to get a lien removed. If you cannot pay in full and don't qualify for an offer in compromise or hardship, you can set up a payment plan. A payment plan will allow you to pay off the tax over time and stop collection actions against you, however, the state will still have a claim to assets until the balance is paid in full.
Apply for an Offer in Compromise
Alternatively, you may want to apply for a VA offer in compromise (OIC). If you're approved for an OIC, paying it satisfies your tax liability. Then, the lien should be removed.
Request Hardship Relief
You may qualify for hardship relief if the tax lien prevents you from paying basic living expenses. To apply, you must submit a financial disclosure. However, Virginia Tax doesn't just consider your financial situation. The agency also considers your history of tax compliance. You can only get hardship relief on a tax lien if you have filed your tax returns for the last three years.
Appeal the Tax Lien for Processing Errors
Virginia Tax must follow procedural rules when issuing a memorandum of lien. If the rules weren't followed, you can appeal the lien. Once you appeal, you should get a response within 14 days, and if there was a mistake, the lien will be removed in seven days.
Contact a VA Tax Professional
To get help removing a VA tax lien, contact a local tax professional. They understand the rules and collection practices used in Virginia, and they will be able to tell you the best way to get a lien removed in your situation.
FAQs About Virginia Tax Liens
Do you have more questions about Virginia tax liens? To help you out, we've put together answers to some of the most commonly asked questions about VA tax liens. Have additional questions? Then, contact a VA tax pro directly.
Can Virginia Tax Take All the Money in My Bank Account?
The state has the right to claim the entire balance in your bank and certain investment accounts, up to the amount that you owe.
For instance, if you owe $10,000 in back taxes, penalties, and interest and you have $5,000 in your account, the state can take the entire amount from your account. However, if you owe $10,000 and you have $12,000 in your account, the state can only take $10,000.
Are Any Bank Funds Exempt From State Tax Liens?
There are certain types of payments that the state cannot take. The following funds are exempt from Virginia state tax liens:
- Social Security, Supplemental Security Income, Veteran's benefits, Longshoremen and Harborworkers Compensation Act benefits, Federal civil service retirement benefits, and other federally protected benefits.
- Black lung benefits
- Unemployment compensation
- Public assistance payments
- Child support payments
- COVID-19 relief payments and loans
What Should I Do If Virginia Tax Seizes Exempt Payments?
If the state seizes exempt benefits, you should contact Virginia Tax and explain which funds they took that they weren't allowed to take. Make sure to provide supporting documentation. You can reach Virginia Tax about tax liens on exempted funds using the following contact details:
Fax: (804) 254-6112
Mail: Office of Compliance
PO Box 27407
Richmond, VA 23261-7407
What Is the Difference Between a VA Tax Lien and an IRS Tax Lien?
Virginia Tax and the IRS use the word liens differently. If the IRS issues a federal tax lien, it's a public notice that secures the IRS's interest in your assets. In Virginia, this is called a memorandum of lien.
If the IRS seizes your assets, it calls the seizure a levy. In contrast, if Virginia Tax seizes your assets, it calls the seizure a lien.
Get Help With VA Tax Liens
If you're dealing with VA tax liens or other tax problems in Virginia, you should reach out to a local tax pro. Tax attorneys, CPAs, and enrolled agents are licensed to represent you in front of the IRS and Virginia Tax. They can help you negotiate payment arrangements with these agencies. They can also ensure your rights are protected.
Ready to get help with your state tax lien? Want assistance removing a VA tax lien? Then, use TaxCure to search for a local tax professional in VA. You can filter your search to look for tax pros with experience with wage liens, bank liens, and more in Virginia. Don't let tax liens destroy your finances — contact a VA tax pro today.