Can the IRS take Money From Your Bank Account?

Tax compliance combines the difficulty of navigating complex laws with the challenge of understanding your finances. Especially if you’re still wondering how to file taxes for the first time.

Being in debt to the IRS is a stressful position to be in. In the worst-case scenario, you may be wondering, ‘Can the IRS take money from your bank account?’ This is an important issue to understand, so read on for a discussion on the topic.

What is a Levy?

A tax levy is a process that a tax authority uses to forcibly collect tax debts. In the United States, the federal tax authority is the Internal Revenue Service (IRS). When a taxpayer owes it money, the IRS can recover that money by selling that person’s belongings or taking the money directly from their bank account, wages, or other income. This is called levying. 

The IRS is more likely to levy bank accounts, wages, and other cash-based assets than fixed assets. This is because seizing and selling non-cash assets such as buildings, vehicles or equipment is more difficult and takes longer, so it is a less effective use of time for the agency.

Can The IRS Take Money From Your Bank Account?

There is a set procedure that the IRS must follow before it can levy your assets. The main requirement is that you must owe back taxes. If you are not in debt to the IRS, then the agency cannot take money directly from your bank account. 

However, if you do have income tax debt, the IRS can start the process of seizing money from your bank account 30 days after sending you notice thereof. During those 30 days, you have the opportunity to resolve the issue. After that, the IRS has the right to seize the contents of your bank account.

When Does the IRS Seize Bank Accounts?

Even seizing cash from your bank account requires some effort by the IRS, so the agency prefers taxpayers to make voluntary arrangements for tax debts. In other words, before levying your assets, the IRS will repeatedly try to contact you and encourage you to pay your tax debts or arrange a payment plan.

If the IRS is unable to reach an agreement with you, the agency will send a legal notice informing you of its intention to levy your assets to pay your tax debt. This notice is called a ‘Final Notice of Intent to Levy and Notice of Your Right to A Hearing’. 

From the day the IRS issues this notice, you have 30 days to clear your tax debt. After that, the IRS will have the right to contact your bank and seize your money.

What Happens When The IRS Takes Money From My Bank Account?

After the 30-day grace period from the date of issue of the intention to levy notice, the following happens:

• IRS instructs the bank to freeze your account for 21 days
• IRS figures out the ownership of the account
• If there are no conflicts of ownership of the account, the process continues
• After 21 days, the bank sends the levied amount from your account to the IRS.

How Does Your Bank Respond to IRS Levies?

First, the IRS instructs your bank to stop all transactions on your account for 21 days. You will still technically have the money, but the bank will not allow you to withdraw or spend any of it.

The purpose of the 21-day holding period is to give the IRS time to figure out the ownership of the accounts it believes are yours. If no issues are found with ownership, the bank will send the requested amount to the IRS.  

The bank is required to send any levied amount, up to the entire value of money in the account. Contacting the bank will not stop the process. 

What Can You Do About IRS Levies?

The only way to prevent an IRS levy after the notice has been issued is to contact the agency to reach an agreement on how you will clear your tax debt. If you’re wondering how to talk to someone at the IRS, you can get more info here.

If the 30-day grace period has already passed, there are still some things you can do. At this stage, the levy will only be lifted if you can prove to the IRS that holding the funds in your account would cause serious financial problems for you. You can do this by directly contacting the IRS, or you can hire a licensed tax professional to do this for you. 

In addition to proving that the levy is causing financial hardship, you will also agree to a plan to pay the outstanding tax debt.

Finally, if the money has already been sent to the IRS, you contact the agency and can claim reimbursement. However, you will only be reimbursed if there was a mistake and too much money was levied. 

IRS Levies FAQ

The questions answered below often come up when figuring out can the IRS take money from your bank account.

What Happens When the IRS Levies a Bank Account?

After the 30-day grace period from the date that the intention to levy is issued, the following things happen:

• IRS instructs the bank to freeze your account for 21 days
• IRS figures out the ownership of the account
• if there are no conflicts of ownership, the process continues
• after 21 days, the bank sends the levied amount from your account to the IRS.

How Many Times Can the IRS Levy Your Bank Account?

Federal income tax debt is subject to a 10-year statute of limitations. For any debts older than 10 years, the IRS is not allowed to levy your bank account to pay them off. However, for any debts that are less than 10 years old, there is no limit on how many times or how many assets the IRS can levy to pay them off.

Note that a levy on your bank account is not a continuous process. Once the funds have been transferred to the IRS, your bank account returns to normal. If the IRS decides to levy your account again they need to repeat the process each time.

Levies are one of the harshest measures the IRS has. They are only applied in cases where the taxpayer does not respond to other methods. In general, if you contact the IRS and make an arrangement (and stick to it), the agency will not levy your assets. Remember, receiving voluntary payments is a much less time-consuming process for the IRS so the agency prefers that over legal tools for forced debt collection.

Read More

• Why Was No Federal Income Tax Withheld From My Paycheck?
• Why Do I Owe Taxes?
• Why Do I Owe State Taxes?
• Are You Exempt from Federal Withholding?
• How to File Taxes With No Income
• Can You File Taxes Without a W2?
• H1B Taxes: Everything You Need to Know

Final Thoughts 

If you are wondering ‘Can the IRS take money from your bank account?’, the short answer is yes, but only if you have tax debts and make no attempt to co-operate with tax collection. After the agency issues an intention to levy your account, you have 30-days to make an arrangement. After that, the IRS will instruct your bank to freeze your account(s) and, after 21 days, send it any amount up to your whole account balance. 

Once the levy has been placed, you can only lift it if you prove it is causing severe financial problems for you. You can only get money back after it has been sent to the IRS if you can prove the agency made a mistake or took too much.

Frank Gogol

I’m a firm believer that information is the key to financial freedom. On the Stilt Blog, I write about the complex topics — like finance, immigration, and technology — to help immigrants make the most of their lives in the U.S. Our content and brand have been featured in Forbes, TechCrunch, VentureBeat, and more.

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