The best way to stop a tax levy in California is to pay your tax bill in full and on time. It is also best to pay your installments in full and on time if you cannot make a full one-time payment on the tax bill.
The California Franchise Tax Board (FTB) can make an error by issuing you a tax levy that you do not deserve. However, handling any mistakes or making a payment before the due date is important. The California FTB will reimburse you the full tax levy amount, including fees and penalties, if you pay before the California FTB recognizes their mistake.
It can be difficult to stop a tax levy in California, even if you are experiencing financial difficulties. We will look closer at what a tax levy is and how to stop tax levies from happening.
California FTB Levy: Overview
There may be a time when you will experience financial hardships, such as the loss of a job, expensive medical bills, or the death of a spouse who was the primary breadwinner. However, you are still responsible for paying your taxes, and there are severe consequences if you do not pay. The California FTB has the authority to seize a portion of your property to pay off a tax debt.
A tax levy is a tool the California FTB can use to collect tax debts. The agency can levy your bank account, income, business assets, personal assets, and other personal property. The California FTB must follow strict rules and regulations when they issue a tax levy, so you must work with a tax professional or attorney who can help protect your rights.
Why does the California FTB use Levies?
A tax levy allows the California FTB to collect assets to pay off a tax debt. You are legally responsible for complying with a tax levy order that the California FTB sends you. The order has specific instructions on how to send funds or property in your possession. There are three types of orders, but the one that deals with taxes is an Order to Withhold for Taxes.
Is There a Difference Between a Levy and Lien?
There is a difference between a levy and a lien, and the California FTB will use both as a tool to collect an unpaid tax debt. A levy is the seizure of assets, whether bank account funds, real estate, vehicles, business property, or other assets. A lien is a claim on your property that becomes a public record of your tax debt. The California FTB is the first to receive the money if you sell or borrow money from the equity in these assets. A lien on real estate is a common tax lien.
Six Types of California FTB Levies
There are several types of levies the California FTB will use to force you to pay off a tax debt. The agency will use the easiest one to pay off most or all the debt.
Bank Account Levy
The California FTB can legally take funds from your bank account to pay your tax debt. The agency must have a valid tax claim to execute a bank levy, and the California FTB can seize all the funds in your bank account. A bank levy can be hard to overturn, so it is important to contact the California FTB to agree to a settlement or installment plan.
Wage Garnishment Levy
The California FTB can contact your employer and garnish your wages if you have a tax debt. The agency will take the lesser amount of 25% of your disposable earnings or 50% of 40 times the state minimum wage of $15.50 (40 x $15.50 = $620 x .50 = $310). The California FTB will not garnish your wages if you make less than minimum wage. Also, disposable income is your gross income minus mandatory state and federal taxes. Your take-home income after voluntary deductions, such as retirement and insurance, differs from disposable income.
Property Levies in California
Property taxes provide revenue for county governments, but the California state government can also benefit from this revenue source. However, if you do not pay your property taxes, the county government can put a lien on your home.
In many jurisdictions, you will have up to 90 to 120 days to pay your property tax debt, including penalties and fees. If you do not pay the tax debt, the county government can seize your home or business, sell it through a tax lien sale, and receive money from the sale to pay off the tax debt. Working with your county government to establish a settlement or payment plan is always best, so you can keep your home or business.
Seizing Assets
Receiving a Demand for Payment letter from the California FTB is a serious matter. It is important to take care of this matter immediately and have up to 30 days to pay your tax debt in full or make installment payment arrangements. Otherwise, the state can seize any assets you own and use these assets to pay off your tax debt.
Offsetting a Tax Refund
The California FTB can withhold a tax refund to pay off a tax debt. You can also work with the agency to have them keep the money if you are expecting a tax refund.
Seizing Business Assets
The California FTB can seize business assets if you are a business owner and have a business tax debt, just like they can seize personal assets.
Stopping a Tax Levy in California
There are several ways you can stop a tax levy in California. However, reviewing your options is important to see which is best for your financial situation. Plus, it is best to communicate with the Californian FTB when you receive a letter from them about your tax debt. You can work directly with the California FTB or access the services of a tax professional to resolve your tax issues.
Paying the Full Tax Debt
The easiest and quickest way to resolve a tax debt issue is to file an extension and pay the full amount. It is important to let the California FTB know that you paid the tax debt so they can verify the payment and stop the collection process.
Agree to an Installment Payment Plan
If you cannot make a full one-time payment to pay off a tax debt, setting up an installment plan will help you avoid a tax levy. An installment plan is helpful if you have a financial hardship and will enable you to pay your tax debt without the California FTB seizing your assets.
Negotiate a Compromise
You can stop a tax levy by negotiating with the California FTB on settling your tax debt. Settling enables you to pay your tax debt for a lesser amount. It is best to work with a tax professional or attorney to negotiate a settlement that will satisfy the California FTB based on your financial situation.
A Due Process Hearing Can Stop a Levy
You can dispute a tax debt by asking the court for a due process hearing. You must request a hearing with a court within 30 days of receiving a withholding order from the California FTB. The best option is to work with a tax attorney to represent you in court.
Claim Financial Hardship
You can claim a financial hardship to stop a levy. You can contact the California FTB, and they will work with you to set up an installment plan or settlement that will fit within your budget. However, you must provide proof of your financial hardship with bank and income statements.
Stop a Levy with an Innocent Spousal Relief
Married people often file joint tax returns. Yet, there are times when one spouse can cause tax problems. If you are married, file joint tax returns, and your spouse has tax debt issues, the California FTB can levy you and your spouse. You can avoid a levy by filing for Innocent Spouse Relief. You must prove your spouse caused the tax problem and that you did not know about this issue.
Getting a Tax Levy Release in California
Getting a tax levy release in California is a difficult process. You will need the services of a tax professional because a tax levy release requires a lot of documentation and verification that the actions the California FTB is taking are wrong. Here are the ways you can get a tax levy release in California.
Proving Financial Hardship
Financial hardship is tough to prove, especially if you are relatively young and do not have any disabilities. However, a recent job layoff or being elderly may temporarily help your case. The California FTB will offer you an installment payment plan, or you can try to settle your tax debt and pay it off at a lower amount.
Prohibiting a Levy on Another Person’s Assets
The California FTB cannot levy another person’s assets to pay off your tax debt. However, proving that funds in your bank are not yours is extremely difficult. It can be suspicious if you are holding someone else’s money in your bank account, especially if they are not a family member.
Get a Tax Levy Release on Exempt Funds
The California FTB cannot levy veteran benefits or Social Security income to pay a tax debt. These are exempt funds, and you must prove that these are your only source of income to get a tax levy release or a refund if the California FTB already seized these funds.
Optional Payment Plans That Can Release a Tax Levy
The best way to release a tax levy is to set up a payment plan with the California FTB. You can discuss your financial situation with the agency and establish an amount you feel comfortable paying that will satisfy paying off your tax debt obligation within a reasonable time.
Get a Tax Levy Release When the California FTB Makes a Mistake
The California FTB does not always get it right and can issue an Order to Withhold even if you paid all your taxes. You can get a tax levy release if you have the documentation to prove you paid all your taxes on time. If the California FTB seizes any assets, they will give you a refund.
Other Unusual Situations That Can Release a Tax Levy
Getting a release on a tax levy is extremely rare under unusual circumstances. In many cases, unusual circumstances will involve a technicality in the paperwork the California FTB provides you with. Working with a tax professional is best if you have questions about an Order to Withhold.
Six Ways to Avoid a Tax Levy in California
There are many ways to avoid a California tax levy. The California FTB is willing to work with you if you need help paying the taxes you owe. Yet, the California FTB expects you to pay your taxes when due. Here is a closer look at how to avoid a tax levy in California.
Avoid a Tax Levy by Filing and Paying Your Taxes on Time
The best way to avoid a tax levy in California is to file and pay your taxes on time. However, this may be difficult for you to do based on your financial circumstances. You must pay the full amount on or before the due date. The California FTB can start the collection process, leading to a tax levy if you only make a partial payment without any arrangements with the agency.
Communicate with the California FTB to Avoid a Tax Levy
Communication is an important aspect of avoiding a tax levy. You can contact the California FTB to discuss your options to see what will work for you and your financial situation. You can set up a payment plan, offer a settlement, or file for economic hardship. The California FTB cannot provide options unless you contact the agency.
Seek Help from a Tax Professional to Avoid a Tax Levy
Avoiding a tax levy can be difficult, overwhelming, and frustrating. A tax professional can help you with this process to ensure you have the best result with a pending tax levy. They understand tax laws in California and will review your tax returns for any mistakes and assess your financial situation to verify your financial hardship. This information will help them determine how much you can afford to pay and how many assets you can keep.
File an Extension with the California FTB to Avoid a Tax Levy
Filing and extension to avoid a tax levy is a great option. You must be proactive and communicate with the California FTB if you need more time to file your taxes. It is best to pay as much as you can now and work with the California FTB to pay the balance in a lump sum or monthly installments. The California FTB makes it clear that an extension to file is not an extension to pay. You can still receive penalties and fees if you do not pay your taxes by the due date.
You can file a personal or business extension, depending on your situation. You can get an automatic extension of six months if you file a personal extension. A business can get a six- or seven-month extension depending on the form they file.
Dispute and Resolve Discrepancies to Avoid a Tax Levy
You can challenge a potential tax levy if you feel there are errors in your tax assessment. The California FTB will review your case if you can prove the agency is in error in these circumstances:
• The funds are exempt from a tax levy
• You received a tax levy from the California FTB in error
• Can prove the funds belong to someone else
• Establish a payment schedule
• Request a levy release due to financial hardship
The California FTB will send you a letter informing you of their pending tax levy. You can respond to the communication channels in the letter to dispute or resolve the issue. You can also contact Taxpayer Advocate Services to help you resolve tax issues. The Taxpayer Advocate Services is an independent agency within the California FTB where agents can help you with various tax issues and protect your rights as a taxpayer.
Stay Informed to Avoid a Tax Levy
The Taxpayers’ Rights Advocate Office is a good resource for obtaining information about tax levies. This office can help you resolve tax issues, provide information about various procedures related to taxes and collections, and help you with resources when there are clear taxpayer rights violations during tax collections or audits.
It is also important to visit the California FTB website at www.ftb.ca.gov. This website will provide you with the information you need about this agency’s services. You can also visit the website’s newsroom section for the latest tax policy and procedure updates.
FAQs
How do I remove a California state tax lien?
The California FTB can put a lien on any real or personal property in your name if you have a tax debt. Therefore, it is important that you respond to any correspondence from the California FTB and set up a payment plan to pay your tax debt before the agency files a Notice of State Tax Lien against you.
Thankfully, there are two ways to release a tax lien. First, you can pay the full tax debt, including fees, penalties, and interest. Second, you can file any missing tax returns. You can contact the California FTB if there is no filing requirement for the year of the tax lien.
How to avoid California income tax penalty?
You can expect to pay an income tax penalty if you do not file or pay your taxes on time. Other reasons why you may receive an income tax penalty include:
• Not paying enough taxes
• Not making an electronic payment when required
• Not withholding enough taxes from your paycheck
• Not having sufficient funds or bouncing a check to make a payment
You can dispute the income tax penalty if you disagree or feel there was a mistake in issuing the penalty. However, you may qualify for a one-time penalty abatement if it is your first time receiving a tax penalty. This cancellation is only available once, and you can only qualify if you fail to file or pay taxes. The one-time penalty abatement is unavailable to trusts, estates, or fiduciaries.
Can you settle California tax debt?
If you can prove that you cannot pay your full tax debt, you can settle your tax debt through an Offer of Compromise. However, an Offer of Compromise will not grant you full forgiveness. You are still required to pay a lesser amount that you owe to stop the California FTB collection process. Also, the California FTB still has the right to collect more money from you with a collateral agreement if your income increases over the next five years.
Does the state of California forgive tax debt?
The California FTB does not forgive tax debt. You must pay something on your tax debt, either the full amount or settle for a lesser amount.
California Tax Levy Phone Number
There are several personal and business California FTB tax levy phone numbers:
Personal income tax collections:
• 800-689-4776 (Weekdays 8 am to 5 pm, closed on holidays)
• 916-845-4470 (For calls outside the US)
Business income tax collections:
• 888-635-0494 (Weekdays 8 am to 5 pm, closed on holidays)
• 916-845-7033 (Corporations outside the US only)
• 916-845-7166 (Limited Liability Companies outside the US only)
• 916-845-7165 (Partnerships outside the US only)
How often can the Franchise Tax Board levy your bank account?
The California FTB can issue an Order to Withhold to your bank every month until you pay off the tax debt. The agency can take money or other financial assets from any accounts at your bank.