Have you ever heard of a bank levy?
If you haven’t, that’s probably a good thing. If you have heard of a bank levy, that is likely to mean that you got a letter in the mail from the IRS. That letter may state that the IRS intends to place a levy on your bank account.
When you don’t pay your taxes, the IRS will try to claim a right to seize your property, including your bank accounts.
How does a bank levy work? Read on to find out.
Levies, Liens, Oh My!
When the IRS sends a letter saying that they’re going to place a levy on your property or assets, they’re basically saying that they’re going to seize them to satisfy a debt.
It’s important to note that the IRS doesn’t suddenly decide to levy a bank account if you’re late with your tax payments.
They have a long collections process where they send out letters that tell you how much you owe when payment is due, and the tax years you owe for. They’ll also add on penalties and interest for non-payment.
If these notices go ignored or without some kind of resolution, the IRS will figure out how to get paid.
Two ways the IRS will try to get the money owed are liens and levies. A lien is commonly placed on your physical property, like your home or car. A lien notifies your creditors that the IRS has a claim against you.
If other creditors also have claims against you for money owed, the IRS uses the lien to push to the front of the line. The IRS will get paid before any of your other creditors.
A levy, on the other hand, is the actual seizure of your property. This could include social security payments, payments from vendors or clients, your checking and savings accounts,
A bank levy is often used in cases where you don’t own physical property. For example, if you’re self-employed and you rent your home and have no other assets to speak of, you will receive a notice of intent to levy.
This is delivered via certified mail. At that point, you’re up against the clock before your bank account is seized.
How Does a Bank Levy Work?
At the point where you receive a notice of intent to levy, you have a few options. Your first option is to do nothing and ignore the notice. The second option is to try to resolve the tax debt to get the levy lifted.
Do Nothing at Your Peril
Should you decide that you only have a little bit in your bank account and the IRS is welcome to it, you’re in for a learning experience.
How does a bank levy work? From the date of the notice, you have 30 days to contact the IRS and make some kind of agreement with them to get the levy lifted. After the 30 days, the IRS has the right to notify your bank to seize your assets.
If you do nothing, and the IRS notifies your bank, the bank will place a hold on your account for 21 days. After the 21 days, your bank is obligated by law to transfer the money in your account to the IRS.
To make matters worse, your bank will charge you a processing fee for the transfer of funds. This is usually around $100.
You might think that the levy is done, and the IRS only got away with a few hundred dollars. Nope, think again. The IRS will levy your accounts as many times as it takes to satisfy the tax debt.
In other words, the problem just won’t go away unless you take action. Hoping to run out the clock on the statute of limitations isn’t a smart way to go, either. You’re still going to accumulate interest and penalties.
Your Options When You Have a Bank Levy
The worst thing you can do if you receive notice of a bank levy is ignore it. It may be tempting to hide and hope that it all goes away, but the IRS won’t stop until you take action to resolve your tax debt.
Fortunately, there are things that you can do when you’re facing a bank levy.
Call a Tax Professional
Dealing with the IRS can be scary, especially when you owe money. Since time is of the essence in this situation, you want to work with a professional with experience in dealing with the IRS. They’ll be able to tell you what your best option is.
Get a Fresh Start
The IRS has an offer in compromise program that lets you get a fresh start on your taxes. You have to fill out a long application that details your financial situation. You also have to tell the IRS how much you can pay of your tax debt, even if it’s less than what you owe.
The IRS can also work with you by creating an installment plan. This is where you pay your tax debt in monthly installment payments until the tax debt is settled.
A Bank Levy Isn’t the End of the World
Anytime you’re facing a tax debt can be scary. It can make matters worse if you get a notice of intent to levy your bank accounts.
How does a bank levy work? You’ll get a certified letter from the IRS. At that point, you can act immediately to prevent the levy. You can also choose to let it go and let the IRS seize your accounts and other assets.
It’s best to take action, whether that’s to go on an installment plan or submit an offer in compromise. It’s always best to work with a professional who can help you make the best decision in your situation.
When you take action, you can punch that tax debt in the face and get it done. Want more financial tips? Head over the budget section to learn how you can create a budget for yourself.