CALIFORNIA
Updated JANUARY 09, 2024

California Tax Levy: Here’s What To Do If the FTB Levies Your Bank Account

Last week, someone — who is now our client — called us here at Choice Tax Relief because he became the victim of a California tax levy.

A California tax levy is a process by which the State of California seizes your property, such as money in your bank account, to apply toward your California state tax debt.

And if you have been notified by your bank that you are being levied by the state, it is imperative that you act quickly.

This is because unlike the IRS — which has a 21-day freeze period — you only have a 10-day freeze period with a California FTB bank levy under the California Revenue and Taxation Code Section 18670(a).

If you don’t resolve the levy within 10 days from the time the levy attaches to your bank account, the bank must forward the funds it believes to be non-exempt to the FTB.

California Tax Levy Notice

This individual became aware of this levy when he received a notice from his bank, USAA, with these words on top:

“GARNISHMENT OR LIEN ON THE FUNDS IN YOUR ACCOUNTS”

The notice went on to say:

“Dear Mr. [Client],

“On March 3, 2023, USAA Federal Savings Bank received a garnishment or lien order from CA Franchise Tax Board, 916-845-3014, case [redacted], to freeze funds in your accounts. The amount of the garnishment or lien was for $6,939.54. We’re sending you this notice to let you know what we’ve done in response to the garnishment or lien.”

California Tax Levy Notice

The notice then went on to inform this individual that some funds in his account — such as Social Security, which can be garnished by the IRS but not the state — are protected by garnishments or liens.

Luckily for this individual, some of the deposits in his checking account were attributable to these protected sources of income.

However, $968.50 of the balance in his account was not protected, and his bank notified him in this notice that they would have to turn the funds over to the state.

Our Client’s Situation With the California FTB

Our client had not filed tax returns in several years, and both the IRS and the FTB had started filing SFRs for these unfiled years.

The FTB had filed SFRs for tax years 2014-2019, resulting in a total balance due — including taxes, penalties, and interest — of $6,934.47, and the FTB was seeking to collect this amount from our client through a bank levy.

Here are the amounts from the client’s most recently received FTB Form 9890 (the annual notice the FTB sends to taxpayers with outstanding California state tax balances):

Tax YearTaxPenaltyInterestFeesAdjustmentsTotal
2019$444.00$246.00$56.22$97.00$11.00$832.22
2018$531.00$267.75$122.31$97.00$0.00$1,018.06
2017$606.00$303.00$189.02$93.00$0.00$1,191.02
2016$1,372.00$683.00$508.34$93.00$12.00$2,644.34
2015$151.00$172.75$99.60$368.00$0.00$791.35
2014$407.00$135.00$119.48$0.00$204.00$457.48
Total$3,511.00$1,807.50$1,094.97$748.00$227.00$6,934.47
 

The client received this annual statement on February 15, and the IRS issued the withholding order to the bank six days later on February 21.

How to Get an FTB Levy Release

There are a few ways to get your FTB levy released so you can get access to your funds again.  Here are your options:

  • Establish financial hardship
  • Show that the levy was issued in error
  • Show that your funds are exempt
  • Enter into an installment agreement

In all of these cases, you should call the FTB at the number on the levy notice you received to discuss the option you are trying to pursue.

Keep in mind that resolving your levy issues may require several different conversations with the FTB; make sure you take notes during each call, documenting:

  • The date and time of the conversation
  • The name of the FTB agent to whom you spoke
  • The station number of the FTB agent to whom you spoke
  • What was said during the conversation

FTB Levy Release for Financial Hardship

If you can prove to the FTB that the levy will cause you financial hardship — which is somewhat equivalent to currently not collectible (CNC) status with the IRS — they will release the levy.

However, proving financial hardship to the FTB is not just a matter of calling them up and informing them that the levy will cause you financial hardship; you’ll have to prove it.

The FTB may ask you information about your income, assets, and monthly living expenses in making their determination of whether or not to grant you hardship status.

In some cases, they may also ask you to complete a financial statement on FTB Form 3561C.

Now, one thing to know about California FTB hardship placements is that they typically don’t last very long, at least compared to IRS CNC status.

In our experience, a California FTB hardship placement only lasts between six and twelve months.

Of course, you can get back into hardship, but you’ll likely have to provide updated financials to the FTB.

FTB Levy Release for Error

If you can show that the FTB issued the levy notice in error, call the number on your levy notice to inform them why this is the case.

The FTB will likely need some time to research the issue, so be prepared to wait for a callback from the agent or to call them back at a specified time.

If the FTB determines that the levy was issued in error, they will release the levy and reimburse you for any charges that you incurred as a result of the erroneous levy.

To request this reimbursement, you must write to the FTB — at the address on your levy notice — within 90 days of the date on the notice, stating:

  • That the error was caused by the FTB’s error
  • That the charges were the result of the FTB’s error
  • That you paid the charges and they were not reimbursed or waived
  • That you responded and provided the information and documentation the FTB requested to resolve your matter

Be sure to include your name and Social Security number on your letter to the FTB regarding the reimbursement.

FTB Levy Release for Exempt Funds

Deposits resulting from certain sources, such as Social Security income, are exempt from state tax levy.

If you can prove that the FTB levy extended to funds in your bank account attributable to exempt deposits, the FTB must release the levy, or at least reduce it to only cover non-exempt funds.

Here is a list of the primary California Franchise Tax Board levy exemptions:

  • Social Security benefits
  • Supplemental Security Income benefits
  • Veterans’ benefits
  • Railroad Retirement benefits
  • Railroad Unemployment Insurance benefits
  • Civil Service Retirement System benefits
  • Federal Employees Retirement System benefits
  • Federal Emergency Management Agency (FEMA)
  • State Relief benefits such as unemployment compensation

When your bank receives a levy notice from the California Franchise Tax Board, it will investigate your accounts and determine how much, if any, of your balance is attributable to these exempt sources of income.

If a portion of your balance is attributable to these sources, this portion will be considered a “protected amount” not subject to levy.  You can use this “protected amount” as you normally would; there’s nothing else you need to do to make sure that the “protected amount” is safe.

FTB Levy Release for Installment Agreement

If you do owe the IRS the amount subject to levy and you don’t qualify for hardship, setting up an installment agreement with the FTB might be the fastest way to get a levy released.

How We Dealt With Our Client’s California Tax Levy

The first thing we did was call the FTB.  Thankfully, our client had an agent already assigned to his case.  This woman became our point of contact.

She allowed us to set up a provisional installment agreement for our client and agreed to release the levy upon the creation of that installment agreement.

Do You have a California State Tax Levy?

If you have a California state tax levy, reach out to a professional immediately.  You can reach our office at 866-8000-TAX (866-8000-829) or book a free consultation here.