Picture a practice administrator who opens the remittance advice and the Medicare deposit is not there. Then a notice from the Bureau of the Fiscal Service arrives saying the payment was reduced to pay a federal tax debt. Not part of it. All of it.
For many physician practices, Medicare is the biggest single payer. When the IRS takes that stream, payroll is next week's problem. Here is how the levy works and the fastest legitimate ways out.
The law: 100 percent of each payment
IRC 6331(h) allows a continuous levy on "specified payments," which include federal payments not based on the payee's income or assets. The normal limit is 15 percent of each payment. Section 6331(h)(3) raises it to 100 percent for any specified payment due to a Medicare provider or supplier under title XVIII of the Social Security Act.
That 100 percent figure is relatively recent. The statutory history shows that a 2014 law raised the Medicare levy to 30 percent, and the Medicare Access and CHIP Reauthorization Act of 2015 raised it to 100 percent for payments made more than 180 days after April 16, 2015. Medicare providers are now treated the same as federal vendors.
How the IRS reaches Medicare money
The levy runs through the Federal Payment Levy Program, an automated system described in IRM 5.11.7. The IRS selects delinquent tax modules that meet its criteria and sends them to the Treasury's Bureau of the Fiscal Service, which matches them against federal payments. According to the IRM:
- Medicare Parts A and B payments disbursed through the Centers for Medicare and Medicaid Services' HIGLAS system are in the program.
- Medicare Parts C and D payments disbursed by the Treasury are in the program.
- Medicare provider and supplier payments are levied at 100 percent of the payment.
The match is by taxpayer identification number. If the debt is owed under the practice's EIN, payments to that EIN are matched. For a sole proprietor, the IRM explains that the program can match under the primary or a cross-reference SSN on business liabilities. How your group bills Medicare, and under which TIN, matters to which payments get caught.
What is not covered: Medicaid
The IRM includes an important note: Medicaid provider and supplier payments are not subject to levy under IRC 6331(h) or the FPLP, because they are administered and paid by state agencies. The IRM adds that those payments may still be subject to levy under IRC 6331(a). So Medicaid revenue is not swept by the automated 100 percent program, but a revenue officer can still serve a paper levy on a state agency for amounts owed to you when the levy arrives.
Commercial insurers are also outside the federal payment program. A revenue officer can levy what an insurer owes the practice with a Form 668-A, which reaches amounts owed at the time of levy, the same way a levy reaches any receivable. We explain that mechanism in our guide to levies on receivables; the rules for a practice's payer receivables are the same.
Notice before the levy, usually
The normal Collection Due Process rules generally apply to the automated program. Under IRM 5.11.7, the FPLP notice process includes a CP 90 (individual) or CP 297 (business), "Intent to seize your assets and notice of your right to a hearing," sent certified mail. That is your pre-levy CDP notice. You have 30 days to request a hearing under IRC 6330.
There is an exception that catches practices with payroll problems. Under IRC 6330(f)(3) and (h)(1), a "disqualified employment tax levy" is any levy to collect employment taxes where the taxpayer requested a CDP hearing on employment taxes for any period in the two years before the period being collected. In that situation, the hearing comes after the levy. The IRM notes that all federal payments in the FPLP except Social Security and Railroad Retirement benefits may be subject to these levies. A practice that has already used a CDP hearing on payroll taxes and then falls behind again may get no advance hearing at all.
The IRM also notes that if a CDP notice was issued more than 180 days earlier, a new warning is not required before an FPLP levy, because the program is a computer matching levy. Old notices count.
How the levy gets released
Modules leave the FPLP when they move into an excluded status. IRM 5.11.7 lists accounts that are generally excluded, including those reported as unable to pay, pending installment agreements posted before the levy, approved installment agreements, pending or approved offers in compromise and open bankruptcies. When a module moves into an excluded status, it systemically reverses out of the program.
IRC 6331(k) reinforces this: no levy may be made while an offer in compromise is pending, while an installment agreement request is pending or in effect, and for 30 days after a rejection or termination (longer if appealed).
Timing is the hard part. The IRM's processing chart lists CMS Medicare provider payments among those processed daily, with cutoff dates that vary. It explains that emergency "rescind" requests through an FPLP coordinator usually work only for monthly payments such as Social Security, and that for contractor and vendor payments, which are paid more often, the systemic release usually takes effect only after some time has passed. Expect that one or more payments may be taken even after you reach an agreement.
Getting money back
Levied proceeds are not always gone for good. IRM 5.11.7 explains that levied payments may be returned in some situations, including timing cases where the levy was released but the payment was already processed. A taxpayer must request return of levy proceeds within the statutory period, which the IRM states as 2 years from the date of the levy payment for payments on or after March 23, 2017.
A plan for a practice under levy
- Find out which balances and TINs are involved. Pull the business and, if relevant, the owners' account transcripts.
- Get compliant. IRM 5.14.5 (revised July 21, 2026) says business taxpayers with employees must file all required returns and be current on federal tax deposits before an installment agreement is granted. A practice that keeps missing deposits will not get one.
- Prepare the financial statement. Collection Information Statements for the practice and possibly the owners, with accounts receivable aging by payer.
- Propose a resolution that moves the account into an excluded status. For many practices that is an installment agreement. In some cases it is an offer in compromise or a hardship determination for an individual.
- Use your hearing rights. If you received a CP 90 or CP 297 and are within 30 days, request the CDP hearing.
Many Medicare levies begin with unpaid payroll taxes. If that is your situation, the firm's payroll tax page explains how it approaches those cases. For the broader menu of options, see our guide to IRS debt options for operating businesses. Practices that also hold contracts to sell goods or services to a federal agency should read our guide to federal contractor levies, because different hearing rules apply. And because collection problems often follow examinations, see our guide to medical practice audits.
Medicare will keep paying your claims. The question is whether the money goes to your practice or to the Treasury. Fix the account before the next remittance.