Can the IRS Take Money Out of My Bank Account? | Banking Advice
Key Takeaways
- The IRS can take money out of your bank account to pay a past-due tax bill, but only after you receive sufficient notification.
- If you ignore overdue-tax notices from the IRS, you might be hit with a tax levy.
- With a tax levy, the IRS can require a bank to freeze your funds and eventually may pull money from your account.
Not surprisingly, a lot of Americans aren’t fond of the IRS. In fact, as the agency responsible for collecting federal taxes, the IRS received the lowest favorability rating among 16 federal agencies in a recent Pew Research Center survey.
If you fail to pay your federal tax debt, the IRS can pull money from your bank account. In fact, the IRS can take enough money out of your bank account to cover the entire debt you owe, says Stephen Weisberg, principal attorney and founder of The W Tax Group, a tax resolution law firm.
What Does It Mean When the IRS Levies My Bank Account?
An IRS levy gives the agency legal permission to seize your property if a federal tax debt has gone unpaid. Not only can the IRS take money out of your bank accounts, it can garnish your wages and seize and your car, real estate or other personal property.
If the agency levies your bank account, funds in the account are held for 21 days and then sent to the IRS. When a bank receives an IRS levy, generally by mail, funds in your account are frozen on the date the levy notice arrives. The 21-day waiting period gives a taxpayer time to arrange payment of overdue taxes or notify the IRS of any errors regarding the levy.
“Once your bank account is levied, you will not be able to remove the money from your bank,” Weisberg says. “Generally, the levy applies to whatever funds were in the account at the time of (the levy). Funds deposited into the account after the levy was initiated will not be taken.”
When Can the IRS Take Money Out of Your Account?
The IRS can take money out of your bank account to cover an unpaid debt only after these four conditions are met:
- The IRS sends you a tax bill.
- You neglect or refuse to pay the tax bill.
- The IRS sends you two documents – the Final Notice of Intent to Levy and the Notice of Your Right to A Hearing – at least 30 days before imposing a levy. The IRS might hand these notices to you in person, deliver them to your home or place of business, or send them via mail. These notices provide a 30-day period for taking action to resolve the debt.
- The IRS sends notices to third parties, such as banks, employers, employees, vendors, customers, friends and neighbors, to seek information about your tax debt.
If you still haven’t paid your tax bill or arranged to settle your debt after all these steps have been taken, the IRS can decide a levy is the “next appropriate action.”
Larry Pon, a certified public accountant and adjunct faculty member at the College of San Mateo, says a levy can happen when you file a tax return and owe money to the IRS, or when the IRS prepares a tax return on your behalf because you haven’t filed and determines you owe money.
How Does the IRS Find My Bank Account?
There are several ways the IRS can track down your bank account information. Among them are:
- Previously filed tax returns.
- Direct deposit requests you’ve made for IRS refunds.
- Information you’ve provided for automatic withdrawal of money from an account to pay IRS bills.
- 1099-INT forms filed with the IRS that report interest you earned from a bank account.
What Can I Expect After the IRS Levies My Bank Account?
Once your bank receives a levy notice from the IRS, it will quickly freeze the money in your account. However, the bank won’t immediately transfer the money to the IRS, says Eliza Gwendalyn Shkolnik, founder of Of Counsel Bookkeeping. Your account will stay frozen for 21 days so you can attempt to resolve the issue with the IRS.
“During that time, you won’t be able to touch the money. If nothing changes by the end of that period, the bank sends the funds to the IRS,” Shkolnik says. “It’s worth noting that a levy only applies to the money in your account on the day the levy hits. Anything deposited afterward isn’t affected unless the IRS issues another levy.”
How Many Times Can the IRS Levy My Account?
The IRS has a 10-year window to collect an unpaid debt. Within those 10 years, there is no limit to how many times the agency can levy your account. After 10 years, it can no longer attempt to collect the debt.
“The IRS can levy your bank account more than once, but each levy is a one-time action. They take what’s in the account at that moment, and that’s it,” Shkolnik says. “If you still owe money, they can come back and issue another levy later on.”
Can I Stop an IRS Bank Levy?
Stopping an IRS bank levy requires fast action on your part. According to tax experts, steps you can take to prevent a levy include:
- Take action on overdue-tax notices from the IRS. If you’re uncomfortable dealing with the IRS directly, Pon recommends hiring a tax professional who has experience dealing with IRS collections.
- Pay off the debt in full.
- Negotiate with the IRS during the 21-day account freeze.
- Work with the IRS to pay off the debt during the 30-day period after receiving the Final Notice of Intent to Levy.
- File a request for an appeal within 30 days of receiving the Final Notice of Intent to Levy.
Pon says it’s pretty simple to set up an IRS payment plan. This could include a short-term 180-day payoff agreement if you owe $100,000 or less, or a six-year monthly payment plan.
Although you’ll pay interest and penalties while your payment plan is in effect, collection efforts like bank levies will stop as long as you make timely payments, Pon says.
You also might qualify for what’s known as an “offer in compromise” to settle your tax debt for less than you owe. When weighing an offer in compromise request, the IRS considers your financial situation, including your income, expenses and equity in assets.
“Whatever your path, the key is to contact the IRS as soon as possible to explore your options,” Shkolnik says.
