Let’s find a tax preparation office for you


Information regarding browser or device support

Oh no! We may not fully support the browser or device software you are using !

To experience our site in the best way possible, please update your browser or device software, or move over to another browser.

Still need to file? We're open!

We can help resolve your tax issues. Call (855) 357-8933 today.


IRS Levy on a Self-Employed Person or Independent Contractor: One-time or Continuous?

Jim Buttonow, CPA, CITP

SVP Post-Filing Tax Services

Published on: September 09, 2021

IRS levies are issued against taxpayers who have been given the chance to pay their debts and have not paid or secured a collection alternative. Most IRS levies are issued by an automated collection system (systemic levies).

The IRS can issue a levy to a taxpayer’s income sources and third parties who hold assets on behalf of the taxpayer. The most common levies are wage garnishments and bank levies. Another common levy is to levy the accounts receivable for a self-employed person or an independent contractor. Taxpayers often get into a dispute with the IRS on whether a levy against an independent contractor/self-employed person is a continuous levy or a one-time levy.

Wage levies: Form 668-W

Wage levies or wage garnishments are IRS seizures of part of a taxpayer’s wages. Wage levies are continuous: meaning they stay in place until the balance due has been paid in full, the taxpayer gets a levy release due to hardship, the statute of limitations on collections expires, or the taxpayer enters into an agreement with the IRS on the balance owed. These agreements generally include a formal extension to pay, a payment plan, currently not collectible status, or an offer in compromise. The IRS uses Form 668-W to levy an individual’s wages, salary (including fees, bonuses, commissions, and similar items), and other income. This form is also used to levy pension and retirement income. Many employers and tax professionals refer to Form 668-W as the “W-2 levy or garnishment” because it normally attaches to continuous payments like wages.

Bank and accounts receivable levies: Form 668-A

Bank levies and accounts receivable levies are seizures of assets in financial accounts or from amounts owed to the self-employed taxpayer by third parties. Bank and accounts receivable levies are one-time levies. This means that that the IRS sends the third party e.g., a financial institution or the customer of the self-employed person a levy notice. The IRS uses Form 668-A to levy property from a third party. The levy notice tells the third party to pay the amount owed to the taxpayer to the government. The third party is instructed to freeze the amounts owed to the taxpayer (i.e., in their financial account or invoices owed to a self-employed person or business). If the taxpayer is not successful in releasing the levy, financial institutions must send the frozen amounts 21 days after receipt of the Form 668-A. Other third parties like customers must send in their payments to the IRS on the day they would normally pay their invoice. Form 668-A is often referred to as the “1099 levy” as many taxpayers levied in this manner are Form 1099-MISC or 1099-NEC recipients, like independent contractors or self-employed persons.

Self-employed and the continuous levy

There is often confusion when self-employed people receive Form 668-W (levy on wages, salaries, and other income) as opposed to Form 668-A (levy of third parties). When Form 668-W is issued to an employer, the levy on their employee is continuous until the tax is paid, or the levy is released. However, many times a continuous levy is issued against self-employed people or independent contractors instead of the more appropriate Form 668-A that would appropriately levy their accounts receivable only once.

Form 668-W states that it is a continuous levy on wages, salary, or other income. Taxpayers are constantly in a dispute with the IRS on what constitutes “other income.” Does this include payments made to an independent contractor? What about a self-employed person like a construction subcontractor who may receive payments for both services and materials?

Treasury Regulation 301.6331-1(b)(1) vaguely addresses this issue and is quoted directly below:

  • Continuing effect of levy on salary and wages. A levy on salary or wages has continuous effect from the time the levy originally is made until the levy is released pursuant to section 6343. For this purpose, the term salary or wages includes compensation for services paid in the form of fees, commissions, bonuses, and similar items. The levy attaches to both salary or wages earned but not yet paid at the time of the levy, advances on salary or wages made subsequent to the date of the levy, and salary or wages earned and becoming payable subsequent to the date of the levy, until the levy is released pursuant to section 6343. In general, salaries or wages that are the subject of a continuing levy and are not exempt from levy under section 6334(a)(8) or (9), are to be paid to the district director, the service center director, or the compliance center director (director) on the same date the payor would otherwise pay over the money to the taxpayer. For example, if an individual normally is paid on the Wednesday following the close of each work week, a levy made upon his or her employer on any Monday would apply to both wages due for the prior work week and wages for succeeding work weeks as such wages become payable. In such a case, the levy would be satisfied if, on the first Wednesday after the levy and on each Wednesday thereafter until the employer receives a notice of release from levy described in section 6343, the employer pays over to the director wages that would otherwise be paid to the employee on such Wednesday (less any exempt amount pursuant to section 6334).

The Regulation clearly seems to equate a continuous levy with payments made that are salaries and an employer-employee relationship.  Furthermore, the first part of this Regulation at 301.6331-(a)(1) addresses the scope of a levy to “property possessed and obligations which exist at the time of the levy.”  The Regulation explains that “obligations exist when the liability of obligor is fixed and determinable although the right to receive payment thereof may be deferred to a later date.”   Employees have fixed and determinable payments- in the form of wages that are routinely paid.  However, payments to contractors are usually not fixed or determinable until the work is done.

The nature of the payments is important in determining whether the levy on an independent contractor is continuous or not.  If the contractor has a contract for services that have not yet been performed, the levy is on future payments that are not obligations which exist at the time of the levy.   Therefore, the levy is a one-time levy and not continuous because the taxpayer does not have the right to receive payments.

What if the independent contractor looks like an employee?

A common issue arises when the IRS issues a notice of continuous levy against an independent contractor that receives payments of a continuous nature from their customers. The IRS believes that the continuous levy (Form 668-W) applies because the IRS thinks the independent contractor is receiving “fixed and determinable payments” like an employee would receive in the form of wages. The IRS may not always consider whether the amounts owed are fixed and determinable and looks to the nature of the payments. If the payments look regular and routine, the IRS may conclude that the contractors receive fixed and determinable payments – like an employee – and issue a continuous levy. The IRS often issues notices of continuous levies against service providers (appraisers, real estate agents, truck drivers) believing they are receiving regular payments.

To determine whether the levy is continuous, it is important to look at whether the amount owed is fixed and determinable at the time of the levy.  Many self-employed persons do not have fixed and determinable amounts owed until the services have been rendered and an invoice has been issued to their customer.   In fact, the IRS told its employees that if the future payments are not fixed and determinable, then a continuous levy does not apply.

Many times, employers get caught in the position of making repeated payments to contractors that look like wages. For example, many information technology departments have computer programmers and IT specialists that are paid continuously (like an employee) but are treated as independent contractors for employment tax purposes. There are many examples of this type of activity where there is not a clear line between payments that look like those of an employee being treated as an independent contractor.  In these cases, a reasonable person may side with the IRS and apply the continuous levy to what seems to be routine, continuous payments made to the contractor.

What about the true self-employed person?

While it may seem acceptable for a continuous levy to apply to the independent contractor who receives continuous payments, it is not acceptable for a continuous levy to apply to many self-employed persons. The building subcontractor example shows why a continuous levy should not apply to a self-employed person. A building subcontractor usually has a contract to provide construction on a property in which he routinely invoices his services and materials. His services may include employees that he has hired, and paid wages amounts for materials he has purchased to complete the job. If the levy is treated as continuous, the contractor would go out of business very quickly as he would have to spend for labor and materials without getting reimbursed through his invoice. In these cases, the levy should be treated as a one-time levy because the building subcontractor’s payments are not fixed and determinable until the services have been performed.

Confusion about how to comply with the levy

Continuous levies usually cause confusion with third parties who are served levies on their contractors and the IRS. In practice, many third parties do not look closely at the nature of the payments, they look at the form issued. The confusion starts when the third party receives the Form 668-W for a contractor. The third party knows that it can be penalized and held liable if they do not correctly retain the proceeds and pay them to the IRS. Faced with potential penalties if they mess up, they often take a conservative approach and treat the levy as continuous. Attempts to get clarification from the IRS often result in the IRS stating that the levy is continuous. Soon, the contractor cannot finish their work because they are “levied out of business” as invoices go unpaid, and they can no longer afford to complete the work.

How an independent contractor can release a continuous levy

If the contractor is not able to convince the third-party that the levy is not continuous, what can they do to release the levy? The IRS only releases levies if tax balances are paid, a hardship exists, or they get into a collection agreement with the IRS on the outstanding balances. Getting a collection agreement like a payment plan, may be the quickest route to end the confusion and get the levy released.

Another route may be to speak to a higher authority at the IRS in hopes that they understand the issue. That means you need to appeal the continuous nature of the levy. The first place to appeal is with the IRS collection manager. The second avenue is to request a Collection Appeals Program (CAP) hearing with the IRS appeals office using Form 9423. Manager reviews are generally completed within 2-3 business days. CAP hearings may take longer, and you likely will need to contact the Taxpayer Advocate’s office for immediate relief to expedite the process.

No explicit instructions lead to frustration

Standard operating procedures for the IRS are written in its Internal Revenue Manual (IRM). The tax code, it’s regulations, and the IRM do not provide clear procedures for IRS collection agents to follow when it comes to accounts receivable and contractor levies. The IRS sometimes issues the correct notice of levy- the Form 668-A, which provides only for a one-time levy. However, when IRS systems issue Form 668-W, IRS employees generally “follow the form” and treat the levy as continuous.

This area continues to be a source of confusion in the tax compliance world. If you are a contractor and are faced with a continuous levy, a payment agreement with the IRS is often the best way to get the levy released. Arguing that the levy is a one-time levy can take time and effectively stop your business from operating. In the end, the IRS may see that the levy should not be continuous, but the interruption to your business operations and income may be catastrophic.

Do you have additional questions?

For assistance creating a strategy to address your tax issue, visit Jackson Hewitt’s Tax Resolution Hub to see the various ways we can help you.

About the Author

Jim Buttonow, CPA, CITP, is the Senior Vice President for Post-Filing Tax Services at Jackson Hewitt. He’s been a leader in helping taxpayers and tax professionals resolve tax problems with the IRS, where he had worked for 19 years in various compliance-enforcement positions. Prior to his current role, Jim’s consulting practice focused on the areas of tax controversy and tax administration, which included leading product development on tax problem software for tax professionals, testifying before Congress, advocating for IRS transparency and efficiency, and proposing innovative large-scale solutions for taxpayers and tax professionals. Jim is also the author of Tax Problems and Solutions Handbook, a publication aimed at helping tax pros work more effectively in post-filing matters and resolving their clients’ most common tax problems.

View Jim's LinkedIn Profile Jackson Hewitt Editorial Policy

Start resolving your tax issues today.

Please enter a valid first name
Please enter a valid last name
Please enter a valid email address
Please enter a valid phone/mobile number
Please select state
Please review our consents and policies:

Why Jackson Hewitt?


    Our Tax Pros will connect with you one-on-one, answer all your questions, and always go the extra mile to support you.


    We have flexible hours, locations, and filing options that cater to every hardworking tax filer.


    We’ve seen it all and will help you through it all. 35 years of experience and our guarantees back it up.