A lot of wage levy cases have a second problem underneath: years of unfiled returns. Sometimes the levy is collecting tax on a return the IRS prepared for you. Sometimes you filed the old years and stopped. Either way, the unfiled returns change what release options are available, and how fast.
Here is the line the IRS rules draw. Unfiled returns block a payment plan. They are not supposed to block hardship relief.
Where unfiled returns block you
Installment agreements
IRM 5.14.5.1.1 and 5.14.5.2 say that before granting an agreement, individual taxpayers must file all required returns and be current with withholding or estimated tax payments. No filing compliance, no agreement. And without an agreement, you cannot use IRC 6343(a)(1)(C), the installment agreement release ground. See installment agreements and wage levies.
Online applications
The IRS online payment plan page says individuals can apply online for a long-term plan if they owe $50,000 or less and have filed all required returns.
Where unfiled returns are not supposed to block you
Economic hardship release
IRM 5.11.2.3.1.4 is direct. When the IRS determines a levy is creating an economic hardship, employees must not “refuse, delay or understate the release amount as a means to secure other compliance, e.g., missing tax returns.” When a taxpayer claims inability to meet basic living expenses because of the levy and there are open delinquent returns, employees should not condition hardship relief on receiving the returns, because “these are separate collection issues.”
The IRS may separately pursue the returns, and it may tell you that an installment agreement requires them. But the hardship release stands on its own. See economic hardship release.
Currently Not Collectible
IRM 5.16.1.2.9 says an account may be reported CNC hardship if the financial statement can be verified, even if there are unfiled returns. In a caution, it says: “If a hardship determination is verified, a levy cannot be issued or left in place to persuade a taxpayer to file.” The IRS can hold the account if an unfiled return is needed to verify the financial picture, but the levy is not the lever. See CNC and wage levies.
When the IRS filed for you
Some levies collect an assessment the IRS made for a year you never filed, built from the W-2s and 1099s it received. Figures built that way may not include deductions or credits you are entitled to, or the filing status you would actually use. The result can be a balance higher than what you actually owe.
Filing your own accurate original return for that year is often the single biggest step toward reducing the debt being levied. Once the IRS considers your return, it can adjust the assessment. Until then, the levy keeps collecting the higher figure. If you believe the underlying assessment is wrong and you did not have a prior opportunity to dispute it, IRC 6330(c)(2)(B) allows that challenge at a CDP hearing. See the CDP hearing guide.
Filing changes your exemption picture too
Your wage levy exempt amount depends on your filing status and dependents. The levy statement asks for them. Filing your returns forces you to get those facts straight, which helps you fill out the levy statement accurately and defend it if the IRS questions it.
Current-year compliance
Filing the old years is half of it. IRM 5.14.5.2 also requires being current with withholding or estimated tax payments. A wage earner with a levy who is under-withheld this year is building next year’s balance. Adjust your W-4 if needed. For a contractor, make estimated payments. The IRS will check before it agrees to anything.
A practical sequence
- Stabilize the paycheck. Return the levy statement. If the levy is causing hardship, request a hardship release now, with a financial statement, without waiting for the returns.
- Get your transcripts. Wage and income transcripts show what the IRS has on file for each year, which is what you need to prepare the missing returns.
- File the missing returns, starting with any years the IRS has assessed on its own figures.
- Fix current-year withholding or estimates.
- Then propose the long-term resolution: an installment agreement, CNC or another option that fits the corrected balance.
An example
Ray did not file for three years after a divorce. The IRS assessed one of those years from his W-2 and a 1099 for a retirement distribution, using single status with no dependents, and levied his wages. His two children lived with him more than half the year and he paid the household costs, so he would have filed as head of household with two dependents.
Ray does two things at once. He asks for a hardship release, because the levy leaves him short of rent, and the IRM says that request should not wait on his returns. And he files all three missing returns, including the assessed year with his correct status and dependents. When the IRS processes the assessed-year return, the balance on that year can come down. With all returns filed and his withholding fixed, he is eligible for an installment agreement on whatever remains.
He also updates his levy statement to head of household with two dependents. For a biweekly paycheck in 2026, that moves his exempt amount under Publication 1494 (Rev. 12-2025) from $619.23 to $1,336.55 while the release is being processed.
What not to do
Do not wait for the levy to end before you start on the returns. Gathering records for several years takes time, and the IRS will want them before it agrees to any long-term arrangement.
Do not refuse to file because you think filing will make things worse. The IRS already has the information returns. It can build its own figures and assess. What those figures may lack are your deductions and credits. Not filing usually means paying more, not less, while the levy keeps running.
And do not assume the IRS can hold a hardship release over your head until every return is in. The IRM says it cannot. Know that rule and ask for the release. For my firm’s guide on getting back into compliance, see what to do about unfiled tax returns.
File the returns because they get you a payment plan and usually lower the bill. Not because someone is using your paycheck as leverage.