As a reminder, employers are required to assist the IRS in collecting taxes  from its employees. Subsequently, when a taxpayer fails to satisfy his or her tax liabilities, employers  must comply with the IRS in its tax collection efforts.  Should  an employer be required to comply with an IRS wage levy, the employer will be required to withhold and remit amounts specified in the IRS tables (Publication 1494) until the outstanding tax liability has been satisfied or the tax levy is released.

Employers need to be mindful that they do not have a choice in this matter.  Employers who do not comply or who refuse to surrender property subject to a levy can be held personally liable for the value of the property not surrendered, as well as facing a penalty equal to 50% of that property’s value, as per provisions by the Internal Revenue Service (IRC § 6332(d)(2)).

The IRS acknowledges that it is not uncommon for employees to argue with employers against complying with an IRS levy by appealing to the employer’s  sympathies and citing the levy creates hardship. The employee may also threaten legal action.  Employers are often stuck between risking personal liability with the IRS and straining their relationship with an employee.  Section 6332(e) relieves the employer, or any third party subject to a levy, from having to decide:  An employer who complies with a levy “shall be discharged from any obligation or liability to the delinquent taxpayer and any other person with respect to such property or rights to property arising from such surrender or payment” (emphasis added).

This point was recently affirmed in a case where the court held not only that section 6332(e) precluded the taxpayer from seeking relief against his employer but also, more broadly, held that, “Even where a levy is determined to be invalid, the custodian of the property is still immune from liability from actions arising from its compliance with the levy” (Hunter v. University of Louisville, No. 2010-CA-001613-MR, slip op. at 4 (Ky. Ct. App. 8/5/11)).

Remember,  employers do not have a choice in deciding whether to comply with an IRS levy. As an employer, you have a lot to lose and nothing to gain from noncompliance. Employers need to be aware of  their legal responsibilities to both the IRS and their employees in dealing with levies.