How to Stop an IRS Bank Levy in New Jersey

You have 21 days from when the IRS freezes your bank account to get the levy released before the funds are sent to the IRS permanently. During this critical window, you can stop the levy by entering into a resolution agreement, demonstrating economic hardship, or requesting a Collection Due Process hearing. Acting within the first few days is essential because your bank, your tax representative, and the IRS all need time to process the release.

How an IRS Bank Levy Works

A bank levy is different from a wage garnishment. Here is the sequence:

1. IRS issues the levy: The IRS sends Form 668-A (Notice of Levy) to your bank.
2. Bank freezes funds: Your bank freezes the balance in your account as of the date and time the levy is received. Only the funds present at that moment are affected.
3. 21-day holding period: The bank holds the frozen funds for 21 calendar days. This waiting period exists to give you time to resolve the issue.
4. Funds sent to IRS: If the levy is not released within 21 days, the bank sends the frozen funds to the IRS.
5. Future deposits are not affected: Unlike a wage garnishment that continues with every paycheck, a bank levy is a one-time seizure. However, the IRS can issue additional levies on future deposits.

For NJ taxpayers, this can be devastating. If your mortgage payment, car payment, or rent check is about to clear when the levy hits, those payments will bounce. Your bank may also charge fees for the frozen account and returned transactions.

Steps to Stop the Levy Within 21 Days

Day 1-3: Contact a tax professional immediately. An IRS resolution professional can file a Power of Attorney (Form 2848) and contact the IRS directly. Time is the most critical factor. Do not wait to see if the situation resolves itself.

Request a levy release on economic hardship grounds: Under IRC Section 6343(a)(1)(D), the IRS must release a levy if it creates an economic hardship, meaning it prevents you from meeting basic living expenses. Your tax representative submits Form 433-A documenting your income, expenses, and financial situation. NJ's high cost of living often supports hardship claims because IRS allowable expense standards for NJ counties are among the highest in the country.

Enter an installment agreement: If you can set up a monthly payment plan with the IRS through an installment agreement, the levy is typically released. The IRS prefers voluntary payments over seized funds.

Submit an Offer in Compromise: Filing an OIC suspends collection activity, which can result in a levy release while the offer is under review.

Request a Collection Due Process hearing: If the levy followed a Final Notice of Intent to Levy and you are still within the 30-day CDP window, filing a hearing request (Form 12153) can halt the levy. If the 30-day window has passed, you can request an Equivalent Hearing, which does not suspend the levy but gives you a forum to contest it.

Pay the balance in full: If feasible, paying the full amount owed (including penalties and interest) results in an immediate levy release.

Joint Accounts and NJ Community Property

New Jersey is not a community property state, but the IRS can still levy the full balance of a joint bank account if one account holder owes taxes. The non-liable joint holder must file a claim with the IRS to recover their share. This requires documentation showing which deposits in the account belonged to the non-liable party (pay stubs, deposit records, separate income documentation).

If you share a bank account with a spouse who has IRS debt, consider whether keeping funds in a joint account creates unnecessary risk. An NJ tax debt specialist can advise on asset protection strategies that comply with tax law.

NJ State Bank Levies: A Separate Threat

The NJ Division of Taxation can also levy bank accounts for unpaid state taxes, independently from the IRS. NJ state levies follow different procedures and timelines. It is possible to face both a federal and state bank levy simultaneously.

If you owe both federal and NJ state taxes, coordinate your resolution efforts. Addressing only the IRS levy while ignoring the state side leaves your accounts vulnerable to a second freeze.

Protecting Your Accounts Going Forward

After a bank levy is released, take steps to prevent future levies:

• Stay current on your resolution agreement: If you entered an installment agreement, make every payment on time. A missed payment can trigger a new levy.
• File all returns on time: The IRS requires tax compliance as a condition of most resolution agreements. Missing a future filing can default your agreement.
• Monitor IRS notices: Do not ignore any IRS correspondence. Each notice in the collection sequence moves you closer to enforcement action.
• Consider direct deposit adjustments: If you are in an active dispute with the IRS, discuss with your tax professional whether temporarily adjusting your direct deposit is advisable.

Get Emergency Help With a Bank Levy

Jennifer O'Neill, EA, MBA, at IRS Help Inc. handles emergency bank levy releases for New Jersey taxpayers. With over 40 years of experience and BBB accreditation since 1982, her firm can contact the IRS within hours of engagement to begin the levy release process. The 21-day window does not allow for delay.

Contact IRS Help Inc. at 1-800-477-4357 immediately if the IRS has frozen your bank account.

Related Questions

Can the IRS take money from my savings account in NJ?

Yes. The IRS can levy checking accounts, savings accounts, money market accounts, certificates of deposit, and other deposit accounts at any bank or credit union. The levy applies to all accounts in your name at the institution that receives the notice.

How many times can the IRS levy my bank account?

There is no limit. Each levy is a separate action targeting the balance at the time it is issued. The IRS can send a new levy to your bank every day if they choose, though this is uncommon. Entering a resolution agreement is the only reliable way to stop repeated levies.

Will my bank notify me of an IRS levy?

Your bank is required to honor the levy, but notification practices vary. Most banks send a notice or make the frozen funds visible in your online banking as an unavailable balance. Some NJ taxpayers first discover the levy when a debit transaction is declined.

Learn more about IRS bank levies in NJ and explore your New Jersey tax relief options. See also: tax lien vs. tax levy in NJ.