A tax levy is when the IRS goes after a person’s property to pay for back taxes. A bank levy is when the IRS freezes a person’s bank accounts for money owed. A state bank levy is similar to one the IRS uses, but is used by state officials. This is an attempt to collect money owed for state taxes.
A levy, federal or state, is one of the harshest penalties a person can face for not paying their taxes. No assets are safe when it comes to a levy being enforced. A levy gives authorities the legal right to seize assets to satisfy the amount of money owed. Also a levy can be used against bank accounts, investment accounts, wages, pensions, insurance policies and physical assets.
There are differences between a levy and a tax lien. A lien is when officials apply a claim against assets. A levy is the physical and actual seizure of these assets. For most, a bank levy is not a surprise. The IRS sends out multiple notices informing taxpayers what is about to happen. Responding to these notices can delay and possibly prevent a levy from being enforced.
Before a levy is issued, a tax amount must be assessed. This number is determined by state taxes filed by an individual. It can also be a number state officials come up with when they file a tax return on behalf of the taxpayer. After the amount is determined, a tax bill is sent out. If the bill is not paid nor any arrangements are made, a final notice with intent to levy is sent. This notice will include what state officials intend to seize and when.
When a bank levy is issued, the bank is notified and instructed to put a hold on all funds in the account. Approximately 21 days later, the money is deducted from the account. If the tax debt is not satisfied, they may keep coming back to withdraw more money as it is deposited into the account. This process will continue until the debt is fully satisfied.
It may seem like the end of the world when a levy is delivered. It is not. There are ways to stop by levy from allowing the state to seize a bank account. Talk with state tax authorities and come up with a payment plan. As long as each payment is made on time, the levy will not be enforced. An offer in compromise may also help. This is when the taxpayer offers to settle the debt for less than the amount owed.
Another way to stop a levy is to prove financial hardship. This is when it is proven that the levy will create significant financial hardship. If it is proven, the levy may not occur. This does not eliminate the debt. It just stops steps to seize specific accounts.
Dealing with a state bank levy can feel like a scary situation. Depending on the circumstances, it may be best to see help and guidance from a tax professional. He or she can help negotiate terms with the state and possibly stop the levy from occurring.