Updated: October 24, 2024

By: Kari Brummond, EA|Reviewed by: Charles P. Corsello, EA

IRS Bank Account Levy Frequently Asked Questions (FAQs)

General Information and Overview of IRS Bank Levies (FAQs)

What is an IRS bank levy?

A bank account levy is when the IRS seizes the funds in your bank account to cover taxes you owe The IRS contacts the bank, the bank freezes your money, and the bank sends the money to the IRS on the 21st day.

How does the IRS execute bank levies?

Before levying your bank account, the IRS must send you a notice that explains the levy and gives you 30 days to appeal or pay your tax debt. If you don't take care of your tax bill during that time, the IRS sends Form 668-A to your bank. The bank uses the information on the form to find your account, and then, they freeze the funds in your account for 21 days. That gives the taxpayer time to dispute if there is an error or other issue. Banks nearly always comply with levy demands because if they don't, they can face penalties and/or become liable for the tax due.

What types of accounts does the IRS levy?

The IRS can levy any accounts at your bank including your checking, savings, and money market accounts. The IRS also has the right to seize investment and retirement accounts.

Why does the IRS levy bank accounts?

The IRS levies bank accounts when taxpayers refuse to pay their tax liabilities. It's much easier to seize the money in your bank account than it is to seize real or personal property.

What is the difference between a bank levy and a wage garnishment?

A bank levy is when the IRS seizes money from your bank account. A wage garnishment is when the IRS seizes money from your paycheck. Bank levies are one-time levies that affect the funds in your account when the levy is issued but not future funds. Wage garnishments are continuous levies that attach to your wages until your tax debt is paid in full.

Is there a fee for bank levies?

Your bank has the right to assess a fee to you for processing the bank levy. Fees vary, but most banks charge around $100. The bank does not have the right to take the fee out of the frozen funds. For example, if the IRS sends your bank a levy notice for $20,000 and you only have $15,000 in your account. The bank must freeze the $15,000. The bank cannot take the fee out of that amount.

How long does a bank levy stay in effect?

The funds in your account will be frozen for 21 days, and then, your bank will send the money to the IRS. Bank levies only attach to the funds that are in your account on the day your bank receives the levy notice from the IRS. If you deposit money after the levy is in place, those funds will not be affected.

How many times can the IRS levy your bank account?

The IRS can levy a bank account more than once. However, the original levy only affects the money in your account when the bank receives the levy form from the IRS. To initiate another levy, the IRS must start the process over and send a new levy notice to your bank. but if this happens, the agency does not need to send you an additional notice about the new levy.

Bank Levy Notification Rules and Processes (FAQs)

What are the laws on notifying taxpayers about bank levies?

Before the IRS can take your money, the following three things must usually happen (with exceptions):

The IRS must assess a tax liability and send you a notice.
You must fail to pay or fail to make other arrangements.
The IRS must send a final notice of intent to levy. The letter must explain that you have 30 days to appeal or make payment arrangements.

If the IRS skips any of these steps, you can get the levy reversed based on procedural errors. However, the IRS only needs to send you a notice of your rights once for each tax period.

What is the IRS Final Notice of Intent to Levy?

The Final Notice of Intent to Levy is a notice that the IRS must send to taxpayers before taking their assets. This notice gives taxpayers 30 days to request a Collection Due Process hearing or make payment arrangements on their tax bills. The IRS uses several different notices including LT1058, CP90, and LT11.

Note that the IRS cannot levy your bank account unless the notice informs you of your right to a hearing. Notices such as the CP504 state that the IRS may seize your bank account or other assets, but this notice in particular does not mention your right to a hearing. If you receive this notice, the IRS may seize your tax refund, but it cannot levy your bank account until it sends another notice outlining your right to a hearing.

What are the exceptions to the 30-day notice rule?

The IRS does not need to give you 30 days notice or advise you of your right to a hearing in the following situations:

The collection of the tax money you owe is in jeopardy (for example, you are perceived to be a flight risk)
To collect tax from a state tax refund
Disqualified employment tax levy

In these situations, the IRS will send you a notice of your appeal rights after it issues the levy.

How to Stop a Bank Levy (FAQs)

What is the fastest way to stop a bank levy?

The fastest way to stop a bank levy is to pay your tax bill in full. Once the payment clears, the IRS will notify your bank to unfreeze the funds.

The IRS will also release the levy if you prove that you're experiencing financial hardship or that the levy was issued in error or on exempt funds. Unfortunately, however, this process can take a while.

Can you stop a bank account levy once the bank has frozen the funds?

Yes, you can stop an IRS bank account levy after your bank has frozen the funds. To do so, you generally must establish that the levy is causing financial hardship or that the IRS or the bank made a mistake in the levy process. You can also stop the levy by paying in full. However, you only have 21 days, and if you miss that window, your bank will send your money to the IRS.

How can a tax professional help with an IRS bank levy?

If the funds in your account are frozen, the tax pro can review the situation and look for procedural errors or other reasons that require the IRS to release the levy. If the IRS has not contacted your bank yet, a tax pro can help you appeal the bank levy and set up payment arrangements on your tax debt. A tax pro can also ensure that the amount you owe is correct, help you request penalty abatement, and guide you toward the best resolution option for your unique situation.

Can I get back the money the IRS seized from my bank account?

Usually, you cannot get the money back once the IRS takes it, but of course, there are rare exceptions. The seized money goes toward the tax you owe, and if applicable, you must request a refund within two years of the levy.

How to Prevent an IRS Bank Levy (FAQs)

How can I avoid an IRS bank levy?

You can avoid a bank account levy by keeping in good standing with the IRS. You should file all required tax returns and pay taxes owed. If you cannot pay in full, set up monthly payments or work out other arrangements with the IRS. Ideally, you should do this as soon as you know that you owe taxes, but when you receive the Final Levy Notice, you have 30 days to make arrangements before the IRS moves forward with the bank levy. Making payment arrangements will also help you avoid other collection actions such as wage garnishment, levies, and liens.

Can you negotiate with the IRS after receiving a levy notice?

Yes. In fact, this is the perfect time to negotiate with the IRS. When you receive the levy notice, follow the instructions to request a Collection Due Process hearing. Then, during the hearing, talk with an IRS employee about making payment arrangements or requesting a settlement. Consider working with a tax professional who understands the options and has your best interests in mind.

Can a partial payment arrangement prevent a bank levy?

Making a partial payment on your tax debt generally will not stop the IRS from levying your bank account. However, if you make arrangements with the IRS to pay the tax, the IRS will not levy your bank account, even if the arrangement is to only pay part of the tax through an offer in compromise or a partial payment installment agreement.

Will setting up an installment agreement prevent a bank levy?

Yes, when you set up an installment agreement (aka monthly payment plan), the IRS agrees to stop enforced collections such as bank levies. However, you must do this before the IRS contacts your bank about the levy. Once your account has been frozen, setting up monthly payments will not stop the levy. However, if you owe additional tax after the IRS seizes your bank account, you may be able to set up payments on the remaining balance to avoid other unwanted collection actions.

Does filing for bankruptcy stop an IRS bank levy?

When you file for bankruptcy, the courts issue a stay that prevents creditors including the IRS from seizing property, wages, bank accounts, etc. If you file, your bank will generally be required to unfreeze the funds in your account. If a stay is in place when the IRS initiates the bank levy, they must remove the levy. Note, however, that bankruptcy does not clear all tax debts. So, depending on the situation, you may still owe the tax debt and may face other unwanted collection actions once the stay has been lifted.

Financial Consequences and Extenuating Circumstances (FAQs)

What if I can't pay my other bills when my bank account is frozen?

Note that the freeze only applies to money in your account when the bank receives the levy notice. You can still deposit additional money and use that to pay your bills. Unfortunately, if you need the frozen money to pay your bills, the IRS doesn't care. That said, if you can prove that the levy is causing severe financial hardship, the IRS may be willing to remove the levy.

Can the IRS levy a joint bank account?

Yes, the IRS can levy a joint bank account if the taxpayer has the right of withdrawal. The IRS has the right to take all of the funds in the account up to the amount of the tax liability including interest and penalties, regardless of which account holder deposited the funds. This rule applies whether you own the account with your spouse, a business partner, or anyone else.

What if the IRS levies a bank account that I only have signature authority over?

The person who had their bank account levied by the IRS should call the telephone number received on Form 668-A(C)DO. Then, they should explain to the IRS how the funds in the account belong to them. You may need to substantiate this claim with documentation. For example, this often happens when taxpayers are signatories on their elder parents' bank accounts or their disabled adult children's accounts. In these situations, you may need to show that all of the deposited funds came from the account holder and not from you (the signer).

How do I know if the IRS levied my bank account by mistake?

If you were not aware that you owed back taxes but your account has been frozen due to the IRS, you should contact the IRS immediately. You can also sign into your online IRS account to see if you owe taxes. Other mistakes include levying exempt assets such as unemployment benefits or certain disability and pension payments. Talk with a tax professional if you think an error has occurred. The IRS must release bank levies if they were issued in error.

What if the IRS levies an account containing funds for business expenses?

If a business owes the taxes, the IRS can levy the business's bank accounts. In contrast, if an individual owes the taxes, the IRS can levy accounts in the individual's name including accounts used for sole proprietorships. However, the IRS cannot collect individual tax debt by levying business accounts owned by partnerships, corporations, or even single-member LLCs that are disregarded entities for tax purposes.

That said, one of the many reasons that an IRS may release a levy is if releasing the levy improves the IRS's chances of collecting the unpaid tax. If a levy on a business account prevents you from running your business, you may be able to convince the IRS that releasing the levy will help you pay the tax, but to make this argument as effective as possible, you should consider working with a tax professional.

What should I do if the IRS is threatening to levy my bank account?

To protect the money in your account, contact a tax professional who focuses on tax resolution and has experience with bank levies. If you're also facing a state bank levy, look for someone who has experience with the department of revenue in your state. To get help, use TaxCure to search for a tax professional today.