How to Remove Franchise Tax Board Levies
The California FTB Can Levy Wages, Bank Accounts, and Other Assets
If you owe delinquent taxes in California, the Franchise Tax Board (FTB) has the right to levy your assets. The FTB can take your wages, money from your bank accounts, or other personal property. It can also seize personal property that you own that's held by a third party.
An FTB levy can cause significant personal and financial stress. This guide provides an overview of CA tax levies and explains how to remove FTB levies.
How to Stop an FTB Tax Levy
You can stop an FTB tax levy by paying your CA taxes in full. Contact the FTB and let the agent know you paid off the tax bill. If the FTB is garnishing wages, you may want to have your payroll details ready. You should have your banking details if the levy is pending against your bank account.
How to Get an FTB Levy Release
The FTB will also release a tax levy if you do the following:
- Prove that the levy is creating financial hardship.
- Show the money belonged to someone else.
- Prove that the levy took funds exempt from state tax levies.
- Show that FTB issued the levy in error.
- Establish that other extraordinary circumstances exist.
- Set up a payment plan and request a levy release.
The following sections contain tips on how to remove an FTB tax levy in each of the above situations. Note, however, that levy removal can be a complicated process. For best results, you should work with a tax pro.
Be aware that it can be hard to remove once the FTB issues a levy. Whenever possible, you should try to make arrangements before the FTB issues the levy.
How to Release an FTB Levy for Financial Hardship
The FTB may be willing to release a levy if it causes you financial hardship. You will need to contact the FTB and tell them that the levy is causing your hardship. To substantiate your claim, the FTB may require you to submit detailed information about your finances to substantiate your claim.
The FTB uses very similar hardship guidelines as the IRS. Generally, you can only get hardship status if you struggle to cover your basic living expenses. When you apply, the FTB will have you complete Form 4561 (Financial Statement).
How to Release a Levy on Someone Else's Property
If the FTB issues a levy against someone else's property for your unpaid state taxes, you can request to have the levy removed. In this situation, you must prove that the property belonged to someone else. This can happen in a range of situations.
For instance, say that you sold a vehicle to someone but never transferred the title. The other person has been using the vehicle and paying for its upkeep for years. Then, the FTB issued a lien against the vehicle because it was in your name. In this case, you need to contact the FTB directly to discuss the situation.
Here's another example, imagine that you are the financial custodian for your adult child who is disabled. Your name is on their checking account, but all of the funds in the account are actually owned by your child. If the FTB levies this checking account, you need to reach out and explain that you don't own the money in this account.
How to Release a Levy for Taking Exempt Funds
You can also release a California FTB levy by proving the levy took exempt funds. For instance, say that your employer miscalculated how much to levy from your paycheck and sent more money than they should have to the FTB. These were exempt funds, and you can request to get them back.
Similarly, if the FTB took exempt Social Security income from your bank account, you can contact the agency and explain that you only receive this type of income. This proves that the FTB didn't seize other non-exempt income sources from your bank account.
How to Release FTB Levy Issued in Error
If FTB issued the levy in error, you need to contact the FTB directly to get the levy released. If the FTB caused the error, the agency would reimburse you for any charges incurred. For instance, if you incurred insufficient funds charges at your bank due to the levy, the FTB may compensate you.
To get compensation for charges, you must write a letter to the FTB within 90 days of the levy issue date. In the letter, explain that the charges were due to the FTB's errors. Then, note that you paid the charges, and they weren't reimbursed by anyone else. Finally, make sure that you note that you responded to all of the FTB's requests for information. The FTB will send you a written response within 30 days.
How to Release a Levy for Extraordinary Circumstances
The most common reasons for FTB levy release include financial hardship, levy issued in error, levy on someone else's property, and levy against exempt assets. However, there may be other situations where the FTB is willing to release a levy.
For instance, exceptional circumstances may include chronic illnesses, advanced age, loss of records due to fire, natural disasters, or other extreme situations. If you believe that the levy should be released for extraordinary circumstances, you should contact a California tax pro. They can talk with you about your situation and let you know if the FTB is likely to release the lien.
How to Release a Levy by Setting Up a Payment Plan
You may be able to get your FTB levy released by setting up a payment plan for your back taxes. In most cases, the FTB will remove bank account levies and wage garnishments if you set up an installment agreement. However, the FTB may still issue a lien against you.
Additionally, the FTB generally will not return levied assets to you if you set up a payment plan. You need to be as proactive as possible when dealing with FTB levies. Don't wait until after the levy occurs to take action.
Types of FTB Asset Levies
The FTB uses two types of asset levies: orders to withhold and continuous orders to withhold. An order to withhold (OTW) is a one-time levy. For instance, if the FTB seizes a vehicle, that is an order to withhold. It happens one time. Similarly, if the FTB seizes the funds in your bank accounts, that's a one-time seizure.
In contrast, a continuous order to withhold attaches to your payments. It lasts for 12 months. The FTB can issue a COTW against 100% of available funds such as rent payments, commissions, or other scheduled payments. If this happens, the person who normally pays you will send the funds to the FTB instead.
The FTB can also use COTWs to claim 25% of payments due to you for contracting out your services. For example, if you are self-employed, this may happen if you don't pay your taxes.
Types of FTB Wage Garnishments
For wage garnishments, the FTB uses Earnings Withholding Orders for Taxes (EWOT). The FTB does not need a court order unless it wants to garnish more than 25% of your wages or garnish wages from a non-liable spouse. In other cases, if you don't pay the tax debt, the FTB can send a letter to your employer and tell them to garnish your wages through an EWOT.
How Much Can the FTB Take in a Bank Account Levy?
If the FTB levies your bank account, it can take the full amount in your account up to your tax bill. For instance, if you owe $5,000 and there is $6,000 in your account, the FTB can levy the full $5,000. If you owe more than the amount in your account, the FTB can seize all of the funds in your bank account.
How Long Does a Bank Levy Take for California Back Taxes?
If the FTB levies your bank account, your bank will freeze the funds for 10 days. Then, it will send the money to the FTB. You need to act quickly if you want to stop an FTB levy against your bank account. You have a very small window of time.
In contrast, if the IRS levies your bank account, the bank freezes the funds for 21 days before sending them to the IRS. This means you have longer to respond before you lose your money.
Can the FTB Levy All of Your Assets for Unpaid Taxes?
For delinquent personal income taxes, the FTB has the right to collect all of your outstanding tax debt, up to 100% of your assets. For instance, if you owe $5,000 and have $10,000 in assets, the FTB can seize up to $5,000 worth of your assets.
In contrast, if you owe $20,000 and only have $15,000 in assets, the FTB can seize 100% of those assets. The FTB seizes the lesser of your tax liability and 100% of your assets.
How Much Can the FTB Levy From Your Wages?
The FTB can withhold up to 25% of your pay for wage garnishments. The FTB subtracts federal income tax, Social Security payments, state income tax, and state disability insurance from your pay to determine how much to withhold.
As of 2022, if you have $217.50 or less left per week after the deductions, the FTB garnishes nothing. If you have more than that amount left, the FTB takes all of your wages between $217.50 and $290 per week. If you earn $290.01 or more weekly, the FTB takes 25% of your pay (after subtracting the deductions listed above).
For example, if you earn $1,000 per week after deductions, the FTB will garnish $250 per week. That is 25% of your disposable wages. If you earn $267.50 per week, the FTB will garnish $50 per week. That is the amount over the $217.50 threshold.
To see how much the FTB garnishes for bi-weekly, bi-monthly, and monthly paychecks, you can check out the wage garnishment chart on the FTB's website.
How Much Can the FTB Levy From Other Payors?
The FTB can also levy payments from other payors. For individual taxpayers, the FTB can levy 25% of these payments. But for business entities, the FTB can levy 100% of these payments.
How Do You Get an Order to Withhold (OTW) Released?
To get an order to withhold (OTW) released, you must pay the tax debt in full or prove that the OTW is causing financial hardship. This also applies to COTW.
How Do You Get an EWOT Released?
The FTB will release an earnings withholding order for taxes (EWOT) if you haven't received due process, you paid the tax debt in full, you didn't owe the liability, or the EWOT is creating financial hardship.
How to Prevent a Future FTB Levy
Releasing an FTB levy once it's in place can be difficult. Ideally, you should always try to avoid an FTB levy if possible. You can avoid an FTB levy by proving that you don't owe the tax bill, applying for hardship status, or setting up a payment or offer-in-compromise agreement.
Get Help With an FTB Tax Levy
Dealing with California back taxes can be challenging and confusing. You certainly don't want an FTB levy to disrupt your finances. The FTB has very specific rules and processes. To protect yourself and your assets, you need help from a tax pro who understands the FTB.
Using TaxCure, you can search for a tax pro who has experience dealing with FTB levies. They can talk with you about getting the levy released and help you explore other tax resolution options for your CA FTB or IRS tax problems.