Quick overview

An IRS bank levy gives the IRS authority to take money directly from your bank, credit union, or other financial institution to pay unpaid federal taxes. The levy is an enforcement tool used only after the IRS assesses a tax, issues collection notices, and the taxpayer fails to resolve the debt or request timely review. (See IRS Publication 594 for the official collection process and taxpayer rights.)

How does the IRS get from a balance due to a bank levy?

Here’s the usual path the IRS follows before levying a bank account. These are the common administrative steps you’ll encounter:

  • Assessment: The IRS assesses the tax after a return is filed or after an audit/adjustment. Once assessed, the taxpayer receives a Notice and Demand for Payment (a balance-due notice).
  • Series of collection notices: If the bill remains unpaid, the IRS sends follow-up notices (sometimes labeled CP-series notices) warning that collection action is pending.
  • Final Notice of Intent to Levy and Notice of Your Right to a Hearing: Before the IRS can seize funds, it must send a final notice at least 30 days before action. That final notice explains your right to request a Collection Due Process (CDP) hearing. If you don’t request CDP or otherwise resolve the debt within the allowed time, the IRS can proceed with a levy. (IRS Collection Process, Publication 594).

Note: The IRS uses different mailed notice codes (CP messages) depending on the situation. Always read the specific notice you receive and follow the instructions and deadlines printed on it.

What actually triggers a bank levy? The short list

  • You have an assessed, unpaid federal tax balance (including penalties and interest).
  • You ignore or do not respond to IRS collection notices, including the final notice giving you the right to a hearing.
  • Alternative collection options (installment agreement, offer in compromise, currently not collectible) are not set up or have failed.
  • The IRS determines that levy is the appropriate next step to collect a priority debt.

The IRS will not levy immediately—law requires notice and an opportunity for review—but once the administrative timeline lapses, a bank levy can follow quickly.

What happens to the funds in your account when the IRS levies?

When the IRS serves a levy on your bank, the bank typically must freeze the funds available in the account and hold them for a short period. During that hold the bank will usually notify you. If you don’t successfully claim exemptions or otherwise stop the levy, the bank will send those funds to the IRS to satisfy the liability.

Timing details vary: banks follow state and federal procedures, and the institution’s processing schedule affects when funds are transmitted. The IRS process and taxpayer protections (including an opportunity to request a hearing and claim exemptions) are described in IRS Publication 594.

Exempt funds, claims, and a fast path to release

Not every dollar in your account is automatically collectible. Certain sources of income are wholly or partially exempt from levy—examples include some Social Security benefits, SSI, certain public assistance, and certain retirement income. However, if those exempt funds are commingled (deposited with non-exempt funds) the bank may still freeze the account and you’ll need to act to recover the exempt portion.

If you believe your funds are exempt, you must file a claim of exemption with the IRS or the levying officer. The IRS provides guidance on when a levy should be released and the forms/process to claim protected funds (see the IRS levies FAQ and Publication 594).

Immediate steps to take when you receive a final notice or discover a levy

  1. Read the notice carefully and note deadlines. The final notice includes the deadline to request a Collection Due Process (CDP) hearing—generally 30 days.
  2. Contact a tax professional immediately. In my 15+ years of practice I’ve repeatedly seen earlier responses unlock options that disappear after a levy is executed.
  3. Request a CDP hearing if eligible. A timely CDP request will pause the levy while the appeal is pending. See the IRS Collection Due Process (CDP) page for the formal process and timelines.
  4. Call or use the phone number on the notice to discuss payment alternatives—installment agreements are often available and can stop a levy if put in place quickly. The IRS also has online tools for setting up some installment agreements.
  5. If the bank already froze funds, identify exempt deposits (paychecks, Social Security) and file a claim for exemption immediately to request a levy release.

For a practical checklist and emergency steps, see our FinHelp guide: Immediate Steps to Protect Assets When Facing a Tax Levy.

Options to stop or release a bank levy

  • Pay the full amount owed. This is the fastest way to end collection action if you can manage it.
  • Enter an installment agreement. If accepted and current, an installment agreement can stop a levy or cause the IRS to release an existing levy once it’s set up.
  • Offer in Compromise (OIC). If you qualify and the IRS accepts, an OIC settles the tax for less than full amount—but qualifying is strict and the process takes time.
  • Currently Not Collectible (CNC) status. If you can prove that collection would create economic hardship, the IRS may place your account in CNC and release the levy temporarily.
  • Secretary-level or administrative release. Levies may be released for administrative errors, when funds are exempt, or when release is otherwise warranted.

Discuss these options with a tax professional quickly; some require documentation or advance negotiation.

More detail on installment agreements and alternatives is available in our related article: How to Qualify for a Streamlined Installment Agreement.

What to expect if the IRS already took money

If the IRS already received funds from a levy, you can still act to recover exempt amounts or request relief:

  • File Form 911 or contact the Taxpayer Advocate Service if you face immediate economic harm.
  • Request a refund or apply for levy release based on exemption evidence or incorrect identification (incorrect taxpayer or bank error).
  • Document deposits and sources—bank statements, paystubs, SSA award letters—to support your claim.

See our step-by-step procedures for recovering funds in: Understanding Levy Release and How to Request One.

Common mistakes taxpayers make

  • Ignoring early notices. Waiting until a final notice often removes affordable choices.
  • Waiting to act until money is seized. Many alternatives (installment agreements, OIC, CNC) are easier to negotiate before a levy is served.
  • Assuming all funds in the account are collectible. Missing a timely claim of exemption can cost you recoverable money.
  • Not getting professional help quickly. A small delay can convert a manageable tax debt into a liquidity crisis.

Real-world examples (anonymized)

  • Self‑employed taxpayer: Quarterly underpayments accumulated over three years. The taxpayer ignored multiple notices; the IRS levied the primary checking account. Rapid intervention to negotiate an installment agreement and file for reasonable living expenses stopped further levies and recovered exempt funds.
  • Small-business owner: A $10,000 unpaid liability froze business checking. The owner negotiated a short-term payment plan, and the IRS released the levy once direct debit payments were established.

These are representative cases I’ve handled in my practice; outcomes depend on timing, documentation, and the taxpayer’s ability to negotiate.

How long does the levy remain in effect?

A bank levy remains in place until the liability is fully satisfied, the IRS releases the levy for another reason (e.g., installment agreement, CNC), or the statute of limitations on collection expires. The IRS typically has 10 years from the date of assessment to collect (the Collection Statute Expiration Date), though certain actions can extend or suspend that clock. (IRS Publication 594)

When to involve the Taxpayer Advocate or a tax professional

If you face immediate financial hardship, the Taxpayer Advocate Service (TAS) can help you get urgent assistance. Engage a CPA or tax attorney when:

  • The levy threatens basic living expenses or business operations.
  • You believe the levy is the result of identity theft, incorrect assessment, or bank error.
  • You need to prepare and present compelling financial records to request CNC or an OIC.

Document checklist to prepare immediately

  • Copies of all IRS notices received.
  • Current bank statements showing frozen funds and deposit sources.
  • Paystubs, SSA award letters, or other proof of exempt income.
  • Recent budget showing income and reasonable living expenses.
  • Proof of any prior payments, correspondence, or installment agreements.

Closing practical advice

  1. Always open IRS mail and act early. Notices include clear deadlines and call-to-action items.
  2. Use the notice phone number and keep records of every call. Ask for names, dates, and confirmation numbers.
  3. If a levy is issued, move quickly to identify exempt funds and request relief; delays make recovery harder. In many cases, a professional’s early involvement preserves options that are gone after a levy is executed.

Sources and further reading

Professional Disclaimer: This article is educational and does not constitute legal or tax advice. Your situation may require tailored guidance from a qualified tax professional or attorney. If you are facing a levy, contact a tax advisor immediately to review your options and deadlines.