What is an IRS Bank Account Levy? How it Works, What to Expect
What Is an IRS Bank Levy?
An IRS bank account levy is when the IRS seizes money from your bank account to cover your tax debt. If the IRS has sent repeated notices demanding payment and you haven’t paid or tried to set up other arrangements, the IRS may issue a bank levy. When this happens, the bank freezes access to your account and eventually sends the funds to the IRS.
When Does the IRS Use a Bank Account Levy?
If you have unpaid tax debt, the IRS sends multiple notices. Typically, each letter gets a harsher tone, and eventually, you receive a Final Notice of Intent to Levy. This notice states that the IRS intends to levy your bank account, wages, or any other property with value to cover your tax bill.
Legally, the IRS cannot take action until 30 days after sending this notice. During that time, you need to pay your taxes in full, contact the IRS about a payment plan, or make other arrangements. If you fail to do anything, the IRS can legally seize your assets.
By law, the following conditions must be in place before the IRS can take your assets:
- The IRS assessed a tax liability and sent a notice to demand payment.
- The taxpayer ignored or declined to pay the tax due.
- The IRS sent a “Final Notice of Intent to Levy” 30 days prior to the levy.
The IRS sends these notices to your last known address, or the agency gives them to you in person at home or work. Once you receive the final notice, the levy may occur after 30 days have passed.
In rare cases, the IRS can levy your bank account without providing a 30-day notice of your right to a hearing. Here are some reasons why this may happen:
- The IRS plans to take a state refund
- The IRS feels the collection of tax is in jeopardy
- You were served a Disqualified Employment Tax Levy
How an IRS Bank Account Levy Works?
After the 30 day grace period that ends from the Final Notice of Intent to Levy letter, the IRS decides which type of levy to use, including bank account levies and wage garnishment.
If the IRS decides to use a bank levy, it tracks down your bank account. In some cases, the IRS has your banking details from previous tax returns, and in other cases, it uses your social security number to find your bank account.
Next, the IRS will send Notice of Levy on Wages, Salary, and Other Income, generally Form 668–A(C)DO to your bank. Your bank must comply and freeze the funds. While your account is frozen, you won’t be able to withdraw the money. At this point, you have an additional 21 days to resolve the situation, otherwise, the bank will remit the funds to the IRS on the 22nd day.
If you don’t reach out to the IRS during that time, the funds in your account go directly to the IRS. If the bank doesn’t comply, the IRS holds them liable for the debt. As a result, the bank always tends to comply with these demands for payment.
The IRS only seizes the funds in the account when the levy was placed. If you make additional deposits during that time such as direct deposit paychecks, the IRS has to issue a new levy to get those funds. If you have outstanding checks or automatic payments when the freeze goes into effect, you may want to make a deposit to cover those impending withdrawal.
An IRS bank account levy is probably the harshest collection mechanism used by the IRS. Can you imagine not having access to your money because the IRS took control of your account? It is important to take action as soon as possible to limit the effects of the levy.
The IRS only uses levies as a final solution for unresponsive taxpayers. The agency would much rather work with taxpayers to reach a solution that works for everyone. If you are facing a levy, you should get help immediately. A tax professional can help you successfully negotiate a payment plan, apply for a settlement, or get hardship relief.