Can the IRS lock your bank account? Find out all you need to know about IRS bank levies.
If you owe back taxes to the IRS, you might feel stressed, confused, and wondering when the IRS will come after you. Every trip to your mailbox or knock on your door might leave you with a sinking feeling in your stomach, worried it’s another collections letter from the IRS.
You might even worry that the IRS will levy your bank account, leaving you with not enough money to pay your bills. And it could happen any day.
The IRS has the names of 3.2 million taxpayers with unresolved tax debt that they could levy. The agency could send a notice of intent to levy at any time. But they don’t yet have the staffing to handle the influx of customer calls from angry people who are ready to face their tax debt after the IRS prepares to freeze their bank account.
Since the pandemic, the IRS hired more than 12,000 revenue officers. But they need additional staffing for customer service. As technology progresses, this staff could include a mix of AI-based chatbots and real people trained to answer complex questions. When that time comes, if you still have unpaid tax debt, you’ll want to be prepared to send a big deposit to the IRS to pay your bill or be ready to negotiate a payment plan.
What Is a Levy?
Levy sounds like a scary word, as you often hear it in relation to tax debt. And, if it happens to you, it definitely can set you back financially. But it shouldn’t come as a surprise, as the IRS will send a It is similar to 30-day notice before sending a Final Notice to Levy.
A levy is similar to wage garnishment, because it’s another way that the IRS can ensure it receives the money you owe.
But a levy is different from wage garnishment because it involves the legal seizure of property or cash to satisfy the unpaid tax debt. Wage garnishment allows the IRS to seize a percentage of your earned income to pay your tax debt.
A levy can include the seizure of wages, as well as funds in your bank account, but also:
- Retirement account funds
- Dividends
- Rental income
- Accounts receivable (for businesses)
- Cars, boats, and other vehicles
- Real estate
- Cash value of life insurance policies
The IRS can even levy accounts that are held by someone else, such as a spouse.
Levy vs. Lien
People often get the tax collection terms “levy” and “lien” confused. If you receive a tax lien, there’s cause for concern. But it’s not as dire as a levy.
A tax lien is a legal claim by the government to your property. If you sell the property, the government will get its share of the sale money to cover your debt.
On the other hand, a levy gives the government the ability to seize the property to pay your debt.
You can learn more about tax liens and how to remove them with help from Alleviate Tax.
What Happens Before You Receive a Levy?
Before the IRS places a tax levy on bank account, the agency will take collection actions with a series of letters. First, you will receive a Notice and Demand for Payment, which is your tax bill.
If you receive this bill, you should pay your taxes as soon as possible. This will stop the potential for any future liens, levies, or wage garnishments based on these past-due taxes. If you can’t afford to pay your tax debt in full, you have several options, including:
- An Installment Agreement or Partial Pay Installment Agreement
- Offer in Compromise
- Filing for Financial Hardship / Currently Not Collectible Status
Alleviate Tax can help you negotiate with the IRS to achieve any of these resolutions, as well as penalty abatement to reduce the total amount of tax you owe. Review our services to see what tax resolution steps might be best for you.
What Happens If You Ignore Your Tax Bill?
If you ignore your initial tax bill, you should receive Notice CP14, which is the first notice of unpaid taxes. The agency will then send three or four reminder letters, roughly every five weeks. However, in February 2022, the IRS stopped sending automated collections notices in order to deal with a backlog of unprocessed tax returns.
So, it’s possible you won’t receive any additional reminder notices before you receive a Notice of Intent to Levy from the IRS.
Once you receive a Final Notice of Intent to Levy and Notice of Your Right to a Hearing, you’ll have at least 30 days to handle it before the IRS levies your bank account or seizes other property or cash.
If you filed state taxes and are due to receive a refund, you may receive a Notice of Levy On Your State Tax Refund. That means the IRS will seize your state tax refund to pay your past due federal taxes.
Timeline of a Levy Notice
The IRS has at least 30 days from delivering your levy notice before they can freeze your assets. They might take longer. But 30 days is your window to take action toward negotiating, settling, or paying your tax debt.
Once the IRS places a levy on funds in your bank account, you’ll have 21 days to contact the IRS and make arrangements to pay your tax debt. You also have the option of disputing the levy if you feel it was made in error.
Once the IRS places the levy, they will freeze your bank account. If you make additional deposits after that date, you can still access them. After 21 days, they will withdraw the frozen funds and put them toward your tax bill.
What To Do If You Receive a Levy Notice
If that fateful day arrives and you find a certified letter from the IRS at your home or place of business, it’s time to take immediate action. Don’t wait. Decide if you want to deal with this tax situation on your own or reach out for professional help from Alleviate Tax.
Either way, you will have to face your tax issue. But if you want to save time and potentially reduce the amount you owe, you’ll want expert help.
Because of their staffing problems, you’ll experience long wait times when you call the IRS. You might not receive the answers you need.
If you file an offer-in-compromise, you have a slim chance of being accepted. However, by working with tax professionals like Alleviate Tax, we can help you make the best offer that won’t strain your budget but has a higher likelihood of acceptance. The offer-in-compromise application is long and unwieldy. We can help save you time and money by walking you through the entire process to reach a desirable agreement.
Likewise, we can help you file an installment agreement to pay your tax debt over time.
If you’re in dire straits and any payment amount would make it impossible for you to pay for food, housing, or transportation, we may be able to help you qualify for Currently Not Collectible status.
The bottom line: You have options. And working with tax debt relief specialists means you can leverage those possibilities to save time and money and resolve your tax debt. Reach out today before that dreaded notice arrives.
FAQs
Find out what people are asking about IRS bank levies.
Can the IRS levy a joint bank account?
The IRS can levy any account owned by the taxpayer, whether they have full ownership or joint ownership.
How often can the IRS levy my bank account?
The IRS can levy your bank account multiple times until the statute-of-limitations on tax debt expires after 10 years.
Can the IRS levy your bank account?
The IRS can levy your bank account, freeze funds, and withdraw them after 21 days to cover unpaid tax debt.
Can IRS freeze bank account?
Freezing your bank account is the first step in an IRS tax levy. Funds deposited before the date of the levy will be frozen for up to 21 days. At that point, the IRS can withdraw those funds to pay your tax debt. If you make deposits after the levy, those funds would not be frozen and would be available for withdrawal.
How long can the IRS freeze your bank account?
The IRS can freeze the funds in your account for 21 days. After that, they will withdraw money.
Can the IRS take money out of your bank account?
After issuing a bank levy, the IRS can withdraw funds from your bank account to pay your tax bill after 21 days.
How do I know if the IRS froze my bank account?
When the IRS freezes your bank account, you should receive a notice from your financial institution. You would also realize your bank account was frozen if you had debit card transactions declined or were unable to withdraw funds, even though your account shows you have money available.
How long does it take to release a bank levy?
To release an IRS bank levy, you’ll need to pay your tax debt in full, set up an installment agreement, negotiate an offer in compromise or successfully file for currently non-collectible status.
