What is an IRS Bank Account Levy? How it Works, What to Expect

Key Takeaways

• Bank Levy - The IRS can seize the money in your bank account if you don't pay your taxes. 
• 30-Day Warning - The IRS must give you a 30-day warning before levying your bank account.
• 21-Day Freeze - When the IRS notifies your bank, the bank will freeze the funds in your account for 21 days. 
• Seizure of Your Funds- If you don't pay in full or prove an error, the bank sends the funds to the IRS at the end of the 21 days. 
• Release for Hardship - The IRS will release the bank levy if you're experiencing immediate financial hardship.
• Return of Seized Funds - Once the funds are gone, they are nearly impossible to get back. 
• Avoid a Bank Levy - Take steps to avoid a bank levy as soon as the IRS sends you the Final Notice of Intent to Levy

What Is an IRS Bank Levy?

A bank levy is when the IRS seizes the funds in your bank account to cover your unpaid tax bill. 

If you refuse to pay your tax bill and ignore the IRS's demands for payment, the agency may send your bank a levy notice. At that point, the bank will freeze all of the funds in your account up to the amount of your tax owed. Then, if you don't take action to remove the freeze, the bank will send the funds to the IRS in 21 days.

IRS Bank Account Levy Timeline - When Will the IRS Seize the Funds in Your Bank Account?

If you don't pay your tax bill, the IRS will not levy your bank account right away. The exact timeline varies, but generally, you won't experience a bank levy until your tax bill is at least six months late if not longer. 

When you have unpaid taxes, 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, but it also tells you that you have the right to request a hearing within 30 days. If you request a hearing, you will avoid the levy, and you will get a chance to talk with the IRS about payment plans, settlements, or other arrangements. 

If you do not request a hearing or make suitable arrangements to take care of your tax debt, the IRS will move forward with levying your bank account or other 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 With Your Right to a Hearing” 30 days prior to the levy.

The IRS sends these notices to your last known address or gives them to you in person at home or work. 

Bank Levy Without 30-Day Notice

In rare cases, the IRS can levy your bank account without providing a 30-day notice of your right to a hearing:

• The IRS feels the collection of tax is in jeopardy
• You were served a Disqualified Employment Tax Levy

The IRS can also seize your state or federal tax refund without giving you 30 days' notice. However, with nearly any other asset including your wages and property, the agency must give you a 30-day notice and inform you about your right to a hearing. 

Bank Account Levy Process - What to Expect 

If you do not request a hearing or appeal the levy during the 30-day window, the IRS will send a 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 up to the amount of your tax debt. 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.

Unless you convince the IRS to release the bank levy during that time, the bank will send the funds in your account directly to the IRS. Banks always comply with levy demands because if they don't, the IRS can hold them personally liable for the taxes.

How a Bank Freeze Works

Your account does not get frozen during a bank levy. Rather, the funds in your account get frozen. This is a very important distinction because it means that you can continue to use your bank account during and after the freeze. However, you will not be able to access the frozen funds.

To give you an example, imagine that you owe $20,000 to the IRS and you have $21,000 in your account. The freeze will only affect the funds in your account up to the amount of your tax debt plus interest and penalties. Thus, in this case, you would still be able to use the remaining $1,000 in your account. 

Now, say that your tax bill is more than the balance in your account and your bank places a freeze on all of the funds in your account. You will not be able to use that money, but you will be able to deposit other money and withdraw it. If you deposit new money in your account after the freeze is in place, the IRS cannot seize those funds unless it issues a new levy.

If you have outstanding checks or automatic payments when the freeze goes into effect, you should make a deposit to cover those impending withdrawals. Otherwise, your bank may return the payments and assess fees on you.

Funds Exempt From Bank Levy

The IRS can seize a lot of assets to recover unpaid taxes, but there are exceptions, some of which may apply to the funds in your bank account. In particular, the IRS cannot legally seize the following:

• Unemployment benefits
• Certain annuity and pension payments
• Workman's compensation
• Certain service-connected disability payments
• Certain public assistance payments
• Assistance under Job Training Partnership Act
• Judgments for support of minor children

The IRS also cannot take funds that legally belong to another person. With bank accounts, this may happen if the taxpayer is listed as a joint accountholder on an account where they do not really own the funds - for example, an account owned by the taxpayer's disabled adult child that is funded by the child's disability payments but the taxpayer is on the account to help their child. If the IRS has seized funds that should be exempt, contact the IRS immediately to remove the freeze, or reach out to a tax professional for help.

Fees for Bank Levies

By law, your bank can charge you a fee for processing the levy. The fee varies from bank to bank, but $100 is the industry standard. If your bank charges a fee and the IRS removes the levy because it was done in error, you can request a refund of the fee from the IRS by filing Form 8546 (Claim for Reimbursement of Bank Charges). You may also be able to get a refund for any overdraft or insufficient funds fees that you incurred due to an erroneous levy. However, you will not be able to get a refund of any fees related to a legitimate bank levy. 

How to Get the IRS to Release a Bank Levy

Once the levy is in place and your funds are frozen, you can ask for a levy release. The IRS will release the levy if you pay in full, establish immediate financial hardship, or prove that the levy was issued in error. If the IRS refuses to release the levy, you can appeal even if the agency has already taken the funds from your account. 

Immediate financial hardship means that you cannot afford essentials, and you may need to show documentation such as an eviction notice or a utility shut-off warning. There are several different reasons you may be able to get a levy released due to an error, such as the following:

• You paid in full before the IRS issued the levy.
• The collection period expired before the IRS issued the levy.
• The IRS seized more than you owe.

You may also be able to get the levy released if you set up an installment agreement that has terms that dictate the levy be released or if you prove that releasing the levy will help you pay your taxes in full.

Does the IRS Need to Leave Money for Necessities?

No, if the IRS levies the funds in your bank account, the agency doesn't have to leave you any money. However, if the freeze on your bank account leads to a situation where you cannot cover your essential living expenses, you can petition the IRS to release the levy based on financial hardship. 

Additionally, if you apply for currently not collectible status or another type of IRS relief program, the agency will look at your situation and ensure that they are not taking any money you need for essentials. To determine the amount you need, the IRS uses a set of financial standards. There are national standards that outline how much you should spend on groceries, clothing, car loan/lease payments, and out-of-pocket medical expenses. Then, there are local standards (set on the country level) that show how much the IRS thinks you should spend on housing and utilities.  

How to Avoid a Bank Levy

Except in cases where the levy was issued in error or you're enduring significant financial hardship, it can be very challenging if not impossible to remove a bank levy. However, it's not that hard to avoid a bank levy. As soon as you know that you have a tax bill, reach out to the IRS to make arrangements. If you've been putting off the bill and ignoring notices, you should take action as soon as you receive the Final Notice of Intent to Levy. As long as you act by the deadline on the notice, you still have the ability to request an installment agreement, an offer in compromise, or whatever option works best for your situation. 

Help With an IRS Bank Levy & How TaxCure Works

A qualified tax professional can help you successfully negotiate a payment plan, apply for a settlement, or get hardship relief. At TaxCure, we have a network of top tax professionals from around the country who can help with bank levies, and we have a unique algorithm that can find the best professionals based upon specific problems and solutions.

Our goal is to increase transparency in the tax resolution industry, help taxpayers who are looking for a tax professionals avoid scams, and make it much easier to find the best pro that meets your specific issues. You can find a licensed tax professional that specifically has experience in resolving IRS bank levies here. You can message them after looking at their expertise, years of experience, background, reviews, and more. To learn more, check out this page of FAQs on bank levies or this guide to hiring tax professionals.