How Much Can They Take and What to Expect
Originally Published September 2021. Updated October 2024.
There are few things more jarring than realizing that you can’t use your debit card, make an ATM withdrawal, or otherwise access your hard-earned money in your bank account. However, this can happen if you fail to pay your taxes on time and do not respond to IRS communications. The IRS has the right to levy your bank account if you don’t pay your taxes, and the process starts with your bank freezing the funds in your account up to the amount of your tax debt plus interest and penalties.
It’s important to address past-due taxes and respond promptly to IRS notices to avoid a frozen bank account. If your account has already been frozen, you still have options. Call Wiggam Law at (404) 233-9800 to set up a consultation with our team of tax professionals now.
What to Expect If the IRS Freezes Your Bank Account
If the IRS decides to levy your bank account, they will send a notice to your bank. The bank must freeze the funds in your account up to the value of your tax debt plus interest and penalties. The funds are frozen for 21 days to give you a chance to respond. If you don’t dispute the freeze or make arrangements with the IRS, your bank will send the money to the IRS after the 21-day period is over.
For example, say that you owe the IRS $10,000, and they send a notice to your bank. If you have $12,000 in your account, the bank will freeze $10,000, and you will be able to access the remaining $2,000. However, the bank will freeze your entire balance if you have less than $10,000 in your account.
How Can You Stop or Release an IRS Bank Account Levy
To unfreeze your bank account funds and have the levy released, you can:
- Pay your taxes in full, including interest and penalties.
- Plead economic hardship to the IRS, meaning you cannot meet basic needs or pay reasonable living expenses without the frozen funds.
- Prove the IRS made an error, such as freezing your account when you have no tax liability.
- Establish that the IRS failed to follow the correct collection process – for example, they didn’t give you 30 days’ notice.
- Let the IRS know they froze exempt funds, such as certain disability or pension payments.
- Show that you don’t own the account – for example, if you’re only the signatory on the account.
- Demonstrate the funds are not yours, for example, if the account is in your name but the funds really belong to your elderly mother, who has you pay her monthly bills with the money.
You may also be able to get the frozen funds released if you set up payment arrangements with the IRS, but that’s not guaranteed. Usually, by the time the IRS gets to this point, they will no longer release the frozen funds unless you meet one of the above criteria.
However, if the funds in your bank account don’t cover your full tax debt, you should make payment arrangements on the remaining debt so that you don’t have to worry about a future bank levy or a wage garnishment.
Warning Signs – What Happens Before a Bank Freeze?
Unless the IRS believes you are about to flee the country and that they will be unable to freeze your account in time to recoup their losses, they will not freeze your bank account without notice. By law, the IRS must give you a 30-day final intent to levy notice and advise you of your right to a collection due process hearing before they can levy your bank account or any other assets.
Unannounced jeopardy tax levies account for a very small percentage of bank account levies, so in most cases, you will receive several notices before the IRS places a levy on your bank account and prevents you from accessing your funds.
Important Notices Before The IRS Freezes Your Account
The IRS sends a few different collection notices, and your first communication from the IRS may be Notice CP14, which simply notifies you that you have unpaid taxes. They often follow this up with Notice CP501, a slightly more urgent reminder that you have not yet addressed your tax debt with the IRS. The next communication you’ll probably receive is CP503, a second reminder of your unpaid taxes. All three of these notices arrive via regular mail.
The next two are much more urgent, and if you’ve ignored previous notices, you definitely don’t want to ignore the next two. Notice CP504, Notice of Intent to Levy, is an official notification that the IRS intends to levy your assets unless you take action to correct your tax debt. Finally, you’ll receive LT11 or Letter 1058, Notice of Intent to Levy, and Notice of Rights to Appeal. Both of these notices will arrive via certified mail.
These letters are generally sent at least a month apart, so you should have several months of notice that a potential bank levy is on the horizon.
Figuring Out Why Your Account Was Frozen
If you woke up to frozen funds in your bank account and your financial institution told you that the freeze came from the IRS, you may be wondering why your bank account was frozen and what you can do next. Determining the reason for the account freeze is your first step.
Unpaid Taxes and Failure to Comply
The IRS will go to great lengths to collect the taxes you owe, whether those unpaid taxes are due to unfiled returns, errors on your filed returns, or a failure to pay the amount listed on your tax return. The IRS does have many other options you can pursue to remain compliant with their requirements, but if you do not exercise those options, a levy may be their last resort.
Tax Fraud
In extreme cases, the IRS may freeze your bank account if you’ve committed egregious tax fraud. This is similar to what would happen with any other federal crime involving American bank accounts; federal agencies would also freeze bank accounts used in drug trafficking or money laundering. Similarly, they will freeze bank accounts, which facilitates tax fraud.
How an Account Freeze Happens
The Internal Revenue Code allows the IRS to exercise a variety of options when taxpayers owe them money. However, they do have to go through the proper channels and give you appropriate notice before they can freeze your account and seize your funds.
What the IRS Must Do to Freeze Your Account Legally
The IRS is required to assess the taxes tied to the levy. They must also have notified the taxpayer and demanded payment before they move forward with a levy. It’s important to note that the early notices you receive do not meet the legal requirements for a levy; the final one does, which is why we recommend addressing your tax concerns long before you get to this stage. After they have sent the final notice and waited out the notice period, they are allowed to freeze your account.
When Do You Find Out?
You should know no later than 30 days before the levy when you receive the final notice from the IRS. Additionally, you should recognize that a levy is possible at any point after the IRS begins sending you notices regarding your unpaid taxes and non-compliance. While there may only be a 30-day waiting period between the last notice and the levy itself, the entire process takes several months.
You Received a Notice of Intent to Levy—Now What?
You received a Notice of Intent to Levy via certified mail. Even if you ignored or misplaced multiple IRS notices prior to this, you must take action at this point. Delaying for too much longer could result in your bank account being frozen.
First, you should gather all of the communication you have received from the IRS. These notices explain how much you owe in taxes, interest, and penalties. They also outline your options for contacting the IRS and addressing your tax debt.
If you can pay your tax debt in full, doing so can prevent a levy and bring you up-to-date with the IRS. This isn’t an option for most taxpayers who are this close to a levy, so it may be time to explore other payment options. This is where professional assistance can help you get back on track and avoid levies.
Tax attorneys handle bank account levies and other collection actions, and if you have an impending levy, they can take steps to help you protect your money and assets. At Wiggam Law, we understand that you rely on your bank account to provide for your family, pay bills, and avoid other financial issues. We’ll look over your tax information and financial records to help you find a repayment option that may prevent a levy.
Options to Avoid a Frozen Bank Account
A bank account levy is often a last resort for the IRS; they would generally prefer to collect taxes in ways that don’t subject taxpayers to financial hardship. If you set up a payment arrangement before the IRS resorts to a bank levy, you can protect the funds in your account from being frozen.
The payment options available to you depend largely on the amount you owe, your financial well-being, and any previous issues you may have run into with the IRS. For example, defaulting on previous payment plans or failing to file taxes on time in the past may prevent you from taking advantage of certain payment options. We’ll look over your finances and your tax history to help you explore these options:
- Payment plan: Payment plans—known as “Installment Agreements”—are often the most convenient option for taxpayers, as most people can apply online and get a decision immediately. This can help alleviate stress when you’re already worried about a bank account levy.
Avoid the temptation to agree to whatever installment agreement payment the IRS offers you, especially if it stretches your budget. You must be able to make your payments on time every month to avoid defaulting and having the IRS demand full payment. If you cannot make the minimum payment, there are other options to consider.
- Offer in compromise: If the monthly payments associated with an installment agreement are too high for your budget, you should talk to a tax pro about an offer in compromise. The IRS may be open to settling your debt for less than you owe if you are able to prove that your offer reflects what you can truly afford to pay.
To be considered, you will need to provide in-depth information regarding your finances. Depending on your offer and ability to pay, you may pay your offer all at once or over a period of several months.
- Currently not collectible: The IRS may consider a taxpayer currently not collectible if their financial status leaves them unable to make any progress on their tax debt. Keep in mind that this is a temporary reprieve, and the IRS will attempt to start collection efforts again once they believe that your financial situation has changed.
Other options may be available to you, depending on your circumstances and what the IRS can offer. For example, a partial payment installment agreement may permit you to pay off what you can until the Collection Statute Expiration Date. You should discuss other solutions with a tax professional.
Other Collection Methods the IRS May Use
A bank account levy isn’t the only way the IRS may collect what you owe. Before seizing your bank account, they will place a lien on your real and personal property to stake a claim on your assets. They can also levy other assets, including your tax refund, wages and self-employment income, real estate, vehicles, and other personal property.
What If Your Account is Frozen, But It Wasn’t the IRS?
Perhaps you assumed your frozen bank account was due to unpaid taxes, but your bank reports that it’s another creditor. Other creditors may secure judgments against you and freeze your bank account, but they have more stringent requirements to meet than the IRS.
Your bank account may also be frozen for other debts you owe, such as child support arrears. In these situations, you’ll want to reach out directly to the financial institution or government agency responsible for placing the hold on your account.
How Spousal and Joint Accounts May Be Affected
Unfortunately, even if someone else shares your bank account, the IRS still has full legal authority to freeze it and prevent access. To regain access to the funds that belong to someone else, you will need to contact the IRS directly and provide proof that the frozen funds belong to someone else. This can be very difficult.
Keeping Your Account Secure in the Future
A frozen bank account is an experience you never want to repeat. Luckily, it’s pretty easy to stay compliant with IRS regulations and avoid another bank account levy.
First, consider how you ended up with tax debt. If you simply misjudged your withholdings or didn’t pay enough in estimated quarterly taxes, you can adjust that fairly easily moving forward. This can protect you from a surprise bill at the end of the year that you are unable to pay.
You should also ensure your contact information is up-to-date with the IRS so you are immediately notified of any issues with your taxes or missed payments. Doing so allows you to address issues promptly before they reach the point of a levy or lien. Not doing so means you will receive no warning before your accounts are frozen.
Finally, don’t forget to stay current on whichever payment arrangement you choose to address your current tax debt. Make all installment agreements on time and avoid accruing extra tax debt so you do not default on your installment agreement. File all required tax returns on time. If you are granted an offer in compromise, you must also comply with their requirements to avoid the IRS demanding the rest of the amount that was written off.
Frequently Asked Questions
What Is a Levy on a Bank Account?
If you do not respond to the Intent to Levy, the IRS will move forward and place a levy on your bank. A levy is a legal seizure of your assets to pay off your tax debt, in this case, the money in your bank account. The levy is sent by mail and is effective as of the date and time received, not the date on the letter.
Does the IRS Have the Authority to Freeze My Account?
Yes, the IRS does have legal authority to seize your bank account. Internal Revenue Code Section IRC 6331 gives the IRS legal rights to seize property belonging to a taxpayer as long as the IRS takes the proper steps to notify the taxpayer in advance. This is why it’s so important to respond to IRS notices promptly. These letters may look like form letters, but they are your chance to correct your tax issues and avoid a bank account levy.
What Is the 21-Day Waiting Period?
The IRS does not immediately remove your funds but instead places a 21-day freeze on the money in your account up to the amount of taxes you owe. The 21-day freeze or waiting period is intended to give you time to dispute the levy.
If you have yet to pay your taxes or reach another agreement with the IRS at the end of the 21-day period, the agency can seize the funds in your account. This means the bank must turn over your money to the IRS. Even after the funds are gone, you can still file a claim with the IRS to have the money returned to you.
What About Future Deposits to My Account?
Note that when the IRS freezes your bank account, it applies to the specific amount noted in the levy on the day and time the bank receives it. If you deposit money into your account after the IRS has placed the levy, the freeze generally does not apply to these additional funds. If the freeze expires and the IRS seizes funds, the levy only takes the amount specified.
If the IRS has frozen the money in your bank account due to non-compliance and unpaid taxes, your funds are at risk of being seized to satisfy your tax debt. You may choose to pay off your tax debt in many other ways, but you must take action now.
With the help of the tax professionals at Wiggam Law, you can explore these options and find an arrangement that helps you avoid a bank account levy. Schedule a consultation with our team or call us at (404) 233-9800 now to get started on your tax resolution journey.