Quick overview
An IRS bank levy allows the IRS to legally freeze and take money from checking, savings, and other deposit accounts to pay an unpaid tax bill. The IRS typically issues multiple notices before levying, and you usually have rights to appeal or request collection alternatives. Acting fast is critical — a freeze can cut off access to money you need for bills, rent, or payroll.
Sources: IRS collection guidance and Publication 594 (see IRS links below).
How an IRS bank levy works: step‑by‑step
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Notice(s) first. The IRS generally sends a series of notices: a Notice and Demand for Payment, followed by a Final Notice of Intent to Levy and Notice of Your Right to a Hearing. That final notice gives you the right to ask for a Collection Due Process (CDP) hearing, usually within 30 days (see IRS Pub. 594).
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Levy issued. If you don’t respond or resolve the debt, the IRS can issue an administrative levy to your bank (this is different from a court-ordered garnishment). The bank receives a levy notice instructing it to freeze and hold the balance.
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Bank freeze and hold period. After receiving the levy, banks commonly place a hold on the account and will not allow withdrawals for a short statutory period while the IRS and bank process the levy. Under IRS procedures, banks are required to hold any funds subject to levy and then remit them to the IRS after the appropriate notice period (see IRS.gov).
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Funds remitted. If you haven’t resolved the issue or successfully appealed, the bank will remit eligible funds to the IRS to cover the tax liability, plus penalties and interest. Once the IRS receives the money, recovering it becomes a claims process rather than simply reversing a bank hold.
What accounts and funds can the IRS levy?
- Personal checking and savings accounts are commonly levied.
- Business accounts (sole proprietor, single-member LLC treated as disregarded entity) can be levied for the owner’s personal taxes.
- Some government benefits and third‑party payments may be partially or fully exempt (for example, certain Social Security, Supplemental Security Income (SSI), and Veterans Affairs benefits have protections depending on how they are deposited). The exemption rules are complex and fact‑specific — refer to IRS guidance on exempt funds.
- Retirement accounts: tax-advantaged retirement plans (IRAs, 401(k)s) are generally reachable by an IRS levy, though practical and legal protections differ. Retirement distributions already paid into a bank account can be levied; funds held inside a qualified plan may be subject to different rules. See our deeper guide on protecting retirement accounts from levy.
Authoritative guidance: IRS levy overview and Publication 594.
How long will the bank freeze your money?
The bank’s initial hold often lasts for the statutory processing window after they receive the levy. Practically, banks will freeze the account and then must comply with the IRS directive to remit funds unless you’ve successfully intervened. That processing and hold timeline commonly takes several weeks; if funds are seized, they may be gone by the time you act.
Important: you should not assume the bank will allow routine withdrawals. Treat any notice as an emergency and act immediately.
Exemptions and protected funds
Some deposits are protected in whole or in part. Common examples include:
- Certain federal benefits: some Social Security and SSI deposits may be exempt, depending on whether the funds can be distinguished in the account and how they were deposited. (See the IRS exemptions guidance.)
- Support payments: child support or spousal support payments may have special protections under state or federal law.
- Newly deposited paychecks: in some cases courts treat recently deposited wages differently; however, IRS rules are broad and can reach many types of direct deposits.
Practical note: If an account contains both exempt and non-exempt funds, segregating money and documenting deposits before a levy can help, but it’s not a guaranteed safeguard. Consult a tax professional quickly if you believe protected benefits are at risk.
Immediate steps to take if you receive a levy notice
- Read the notice carefully and note deadlines. The IRS notice will explain the amount owed and your appeal rights.
- Call the IRS immediately using the number on the notice and request information about the levy source and the amount being sought.
- Contact your bank and tell them you are responding to the levy; ask what actions they have taken and whether funds are on hold.
- Evaluate relief options: pay in full, request an installment agreement, submit an Offer in Compromise (if you qualify), or ask for Currently Not Collectible status.
- File for a Collection Due Process (CDP) hearing or an appeal if you received a Final Notice of Intent to Levy—this can often stop the levy while your appeal is pending.
- Get professional help: a CPA, enrolled agent, or tax attorney can negotiate with the IRS and file appeals properly.
In my practice I’ve seen quick phone calls and professional representation stop many levies before funds were transferred. The IRS will usually accept a formal request for an installment agreement or proof of financial hardship to release a levy if the taxpayer acts before funds are remitted.
Options to stop or release a levy
- Payment in full. Paying the balance stops the collection.
- Installment agreement. Entering a direct debit installment agreement and starting payments often prompts the IRS to release a levy.
- Offer in Compromise (OIC). If you qualify, an OIC may settle the liability for less than the full amount. OICs require documentation and approval — they are not a quick fix.
- Request a Levy Release for financial hardship. If the levy creates an immediate economic hardship (e.g., inability to pay for basic living expenses or meet payroll), the IRS may release the levy temporarily or permanently.
- File a Collection Due Process (CDP) hearing or Equivalent Hearing. Timely filing of a CDP request can stay levy action while the IRS reviews your case.
Refer to IRS guidance on requesting levy releases and appeals for exact forms and procedures (IRS.gov).
How to get money back after the IRS seizes funds
If the IRS already received money from a bank levy but you later prove the funds were exempt (for example, only Social Security benefits were in the account), you can file a claim for refund with the IRS. This process can take time and may require documentation showing the exempt nature of the deposits.
If a third party (a bank) mistakenly turned over funds, your remedy is normally a claim against the IRS for refund; the bank’s role ends once it remits funds under the levy.
Common mistakes to avoid
- Ignoring notices. Not opening IRS mail eliminates your ability to appeal or negotiate before a levy happens.
- Waiting too long to get professional help. Tax professionals know how to file timely CDP requests and negotiate installment agreements or hardship releases.
- Assuming retirement accounts are always safe. Some retirement funds are reachable; get specific advice about your plan type.
- Moving money between accounts to hide funds. This can complicate your case and create additional legal issues — it won’t reliably prevent a levy.
Real-world examples (anonymized)
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Payroll risk: I helped a small-business owner who nearly lost operating cash after a levy on the business checking account. We negotiated a short-term installment agreement and the IRS released the levy before funds were remitted, which allowed the owner to meet payroll.
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Protected benefits: another client’s account contained a mix of Social Security benefits and other income. We documented deposits and successfully supported a claim that the levied funds were exempt; the IRS refunded the seized portion after review.
These examples underscore the value of quick action and proper documentation.
Documentation and evidence to gather
- Copies of IRS notices and any correspondence
- Recent bank statements showing deposits and account balance history
- Paystubs, benefit statements (e.g., Social Security or VA letters), and proof of direct deposit timing
- Business records if a business account was levied
Give these to your tax pro and the IRS to speed up relief or refund requests.
Helpful IRS resources
- IRS: Levy — https://www.irs.gov/businesses/small-businesses-self-employed/irs-levy
- IRS Publication 594, The IRS Collection Process — https://www.irs.gov/publications/p594
- IRS information on Collection Due Process and Appeals — https://www.irs.gov/appeals
Internal resources on FinHelp.io
For step‑by‑step guidance and templates, see our related articles:
- How to Stop an IRS Levy in 10 Practical Steps: https://finhelp.io/glossary/how-to-stop-an-irs-levy-in-10-practical-steps/ (useful checklist for immediate action)
- Protecting Retirement Accounts from IRS Levy: https://finhelp.io/glossary/protecting-retirement-accounts-from-irs-levy/ (details on retirement plan protections)
- How to Request a Collection Appeal to Stop an IRS Levy: https://finhelp.io/glossary/how-to-request-a-collection-appeal-to-stop-an-irs-levy/ (how to file a CDP or equivalent request)
Final takeaways and next steps
An IRS bank levy is disruptive but often avoidable with timely action. Open IRS notices, call the number on the letter, contact your bank, and engage a tax professional if you can. If you are facing a levy now, focus first on preserving evidence of exempt deposits, requesting a CDP hearing if eligible, and negotiating payment or hardship relief with the IRS.
Professional disclaimer: This article is educational and does not constitute tax, legal, or financial advice. For guidance tailored to your situation, consult a CPA, enrolled agent, or tax attorney.
Authored by a tax and financial professional with over 15 years’ experience helping clients navigate IRS collection actions.
