What’s a Levy On Bank Account?
A Federal Bank Levy is when the IRS freezes monies in a person’s bank accounts for federal taxes owed. A state bank levy is very similar to an IRS bank levy and is a collection action used by state taxing officials. A state bank levy is an attempt by the state 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. A levy gives taxing authorities the legal right to seize assets to satisfy the amount of tax owed. A levy can be used against bank accounts, investment accounts, wages, pensions, insurance policies and physical assets.
A levy is different from a tax lien. A tax lien is when taxing officials apply a claim against assets. A levy is the physical and actual seizure of these assets. For most people, a bank levy is not a surprise. The state taxing authority will send the bank and usually the taxpayer a notice of levy on bank account. Upon receipt of a notice of levy on bank account most banks will notify their customer about the state notice of levy on bank account. Responding to these notices can delay and possibly prevent the actual enforcement of a levy.
What Happens When Levy Is Issued?
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 tax balance owed that state taxing officials come up with when they prepare and file a tax return on behalf of the taxpayer. After the assessed tax had been determined, a tax bill is sent out to the taxpayer. If the bill is not paid or if no arrangements for payment are made, a final notice with intent to levy is sent to the taxpayer. This notice will include what funds or other assets state officials intend to seize and when.
When a notice of levy on bank accounts is issued, the bank is notified and instructed to put a hold on all funds in the taxpayer’s bank accounts. If the bank levy is issued by the IRS, then approximately 21 days later, the money is sent to the IRS. If the bank levy is from a state taxing authority, the length of time that a bank will freeze the account prior to actually sending the funds to the state vary depending on state law and state procedure. If the tax liability is not satisfied by the amount of money seized and sent to the state, the taxing authority may keep filing additional bank levies and continue to withdraw more money as it is deposited into the account. This process will continue until the tax liability is fully satisfied.
How To Stop Bank Levies?
There are ways to stop the state tax levy on bank accounts and prevent the state from seizing the funds in a bank account. Upon first learning of a state bank levy it is imperative that you talk with the state tax authorities immediately before the bank has sent the bank funds to the state and to come up with a payment plan.If the payment arrangement gets approved by the state tax authority and payments are being made timely, then the bank levy will possibly not be enforced. An Offer in Compromise may also help, if the particular state issuing the state bank levy offers an Offer in Compromise program. An Offer in Compromise is when the taxpayer offers to settle the liability for less than the amount of tax owed.
Another way to stop a state bank levy is to prove financial hardship. In order to prove a financial hardship, you must be able to demonstrate to the taxing authority issuing the levy that enforcement of the levy will create a significant financial hardship to the taxpayer and his or her family. If the financial hardship is proven, then the levy may not occur. This does not eliminate the liability– It just stops the seizure of specific accounts.