How the IRS Collects from Bank Accounts and What Protections You Have

Quick overview

If you owe federal taxes and ignore notices, the IRS can collect by levying (seizing) funds in your bank account. The agency generally must send a Final Notice of Intent to Levy and a notice of your right to a hearing at least 30 days before taking funds. After a levy is served on a bank, the bank typically places a temporary hold so the IRS can request a transfer. Understanding the timeline, what money is protected, and your relief options is the fastest way to stop or limit a levy.

(Authority: IRS levy guidance; see IRS.gov for details.)

How the levy process works, step by step

1. Notices and assessments. The IRS must first assess the tax you owe. It will send a series of notices (billing notices and balance-due letters). If you don’t respond or make arrangements, collection escalates.

2. Final Notice of Intent to Levy. Before the IRS may levy your bank account, it must provide a Final Notice of Intent to Levy and a notice of your right to a Collection Due Process (CDP) hearing. That notice gives you at least 30 days to respond or request a hearing. If you request a CDP hearing within the 30-day window, the IRS generally will not proceed with the levy during the appeals process. (IRS: Final Notice of Intent to Levy and Notice of Your Right to a Hearing.)

3. Levy on the bank. If you don’t respond or resolve the debt, the IRS can serve a levy on your bank. The bank is legally required to comply; in practice the bank freezes the account and notifies the IRS of available funds.

4. Bank hold and transfer. After the bank receives the levy notice, it typically freezes the account and has a limited amount of time before remitting funds to the IRS. In many cases banks place a hold that lasts about 21 days while the IRS completes processing. If the account contains exempt funds (see below), the bank may return those amounts to you or withhold only non-exempt portions. (IRS: About levies.)

5. Levy release or continued collection. The IRS will withdraw funds to cover the tax, penalties and interest. The levy remains effective until the tax is paid, the IRS releases the levy, or the statute of limitations on collection expires (generally ten years from the date of assessment).

Which funds are protected or exempt?

Certain federal payments are protected from levy or have special protections. Common examples include:

• Social Security benefits and Supplemental Security Income (SSI) — when these payments are clearly identifiable, they are generally exempt from IRS levy. If those benefits are commingled with other funds in a bank account, the protection may be reduced. (IRS guidance on exempt funds.)
• Veterans’ benefits and certain federal retirement payments.
• Federal means-tested welfare benefits and some state public assistance payments.
• Certain unemployment benefits (varies by program and state rules).

Important nuance: exemption depends on whether the funds are identifiable in the account. If an exempt check is deposited and later commingled with other non-exempt funds, the bank may not be able to return the exempt portion without clear records. When possible, keep exempt benefits in a separate account to maintain their protection.

The IRS also uses collection financial standards (national and local standards) to evaluate what a taxpayer needs for living expenses. If a levy would leave you unable to meet basic expenses, you can request a release based on financial hardship or be placed in Currently Not Collectible status. (IRS collection financial standards.)

Practical options to stop or limit a bank levy

• Respond to notices immediately. The earliest and often best defense is to engage with the IRS when you get the first or second notice. Calling the number on the notice can avoid escalation.

• Request a Collection Due Process (CDP) hearing. If you receive a Final Notice of Intent to Levy, you have 30 days to file a request for a CDP hearing (usually by submitting Form 12153 or following the instructions in the notice). Filing timely generally suspends levy action while the appeal is pending. (IRS: Your Appeal Rights.)

• Set up an installment agreement. If you can pay over time, an installment agreement (monthly payments) will stop further levy actions while the agreement is in effect. The IRS offers multiple types of installment plans; see our guide to choosing and setting up options. For details, see our article on IRS installment agreements.

• Consider an Offer in Compromise (OIC). If you cannot pay the full tax and qualify under IRS criteria, an OIC may settle the liability for less than the full amount. Preparing a competitive OIC requires careful documentation. See FinHelp’s coverage on Offers in Compromise for qualifying, application steps, and common pitfalls.

• Request a levy release for hardship. If the levy prevents you from meeting basic living expenses, submit financial documentation to the IRS and request release or Currently Not Collectible (CNC) status. The IRS will evaluate your income, allowable expenses, and assets.

• Prove exempt funds. If the levy targets an account containing exempt federal benefit deposits, produce proof (award letters, deposit statements) to request return of protected funds.

What to do immediately if you get a Final Notice

1. Read the notice carefully: it will explain the type and amount of tax, and instructions for appeal or payment.
2. Call the number on the notice to confirm balances and ask about options.
3. Consider filing for a CDP hearing within 30 days to stay the levy. Keep a copy of your mailing and certified delivery receipt if you send a request.
4. Collect documentation: bank statements showing deposits and balances, proof of exempt income (Social Security award letters), bills, and proof of unavoidable expenses.
5. If you can pay a portion, negotiate an installment agreement or ask about a partial-payment plan to stop immediate seizure.

Commingled accounts and protecting exempt funds

Commingling happens when exempt funds (for example, Social Security) are mixed with wages or other income in the same checking account. When funds are commingled, banks and the IRS may have difficulty separating exempt from non-exempt dollars. Practical steps:

• Keep benefit payments in a dedicated account when feasible.
• Maintain clear, dated deposit records that show which deposits are exempt benefits.
• If a levy occurs, provide documentation immediately to the bank and the IRS to identify exempt deposits.

In my practice, clients who kept exempt benefits in a dedicated account avoided lengthy fights to reclaim seized funds.

Common mistakes and misconceptions

• “If I ignore it, it will go away.” Ignoring IRS notices is the most common and costly mistake. Notice escalation leads to levies, liens, and collection fees.
• “The IRS can take every dollar.” Not true — many payments are protected and the IRS must respect collection due process rules. That said, non-exempt funds in an account are vulnerable.
• “A levy is instant and permanent.” Levies can be released, negotiated, or put into CNC status if you document hardship or arrange a payment plan.

Real-world example (short)

A client who received a Final Notice had deposited their Social Security check into a joint checking account that also received paychecks. The bank froze the account after a levy. Because the client had separate statements showing the Social Security deposit and clear dates, we provided the documentation and the bank returned most of the exempt amount while the IRS evaluated the release request. The case underlines two lessons: (1) keep exempt benefits separate when possible, and (2) document deposits.

When to get professional help

If you face a levy, call a qualified tax professional or attorney as soon as possible. A practitioner can help you: request a CDP hearing, prepare an Offer in Compromise, set up a realistic installment agreement, and document hardship for a levy release. In my 15 years helping clients, early action and complete documentation are the two most reliable ways to avoid permanent loss of essential funds.

Quick reference: common IRS and consumer resources

• IRS — Levies and liens information: https://www.irs.gov/businesses/small-businesses-self-employed/levy (official IRS guidance on levy process and taxpayer rights)
• IRS — Collection Due Process (CDP) and appeals instructions (refer to your Final Notice for the exact steps and mailing address)
• Consumer Financial Protection Bureau — consumer protections and managing bank holds (general help for dealing with seized bank accounts)

For guidance on alternatives and next steps, see FinHelp articles:

• Offer in Compromise: Qualifying, Applying, and Pitfalls — https://finhelp.io/glossary/offer-in-compromise-qualifying-applying-and-pitfalls/
• IRS Installment Agreements: Types, Costs, and Application Tips — https://finhelp.io/glossary/irs-installment-agreements-types-costs-and-application-tips/

Professional disclaimer

This article is educational and does not replace personalized legal or tax advice. For advice tailored to your situation, consult a licensed tax professional or attorney experienced in IRS collections.

Last reviewed: 2025 (information reflects IRS procedures and consumer protections current as of 2025).