How to Keep the IRS from Freezing Your Accounts

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Written by Guest | August 9th, 2019
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Guest Post by Zaneta Wood

Sometimes life gives you lemons.

We all have a story about that one (or two or three) times we owed federal or state taxes and just didn’t have feasible access to the funds.

Here’s the truth:

Out of all the bills you have to pay (rent, utilities, car payment, student loans, medical bills, credit card, etc.), the federal government is the only payee that can actually garnish your wages, take the funds if you have them, or freeze your bank accounts so you can’t access what little you do have.

In this post, we cover some of the important things to know as well as some strategies you can use to prevent or recover from the federal government freezing your assets.

This post provides information regarding federal taxes and does not include information for each state. Be sure to check the tax collection laws in your state when it comes to paying taxes owed at the state level.

The consequences

If you don’t pay your taxes owed within a certain time period, and you have been notified multiple times, the federal government will reach into your checking, savings, money market, IRA, etc. and snatch the total amount owed if you have an available balance that meets or exceeds what you owe in taxes.

This can result in further fees and penalties including insufficient funds fees, overdraft fees, or early withdrawal fees, and no one will pay these fees for you. Your money just simply disappears, or you lose access to it, and your bank has no authority in this matter.

If you don’t have the entire amount owed in one of your accounts, then all of your accounts will be frozen. Simple as that. Every transaction will be declined, and if you go speak with someone at your bank, begging and pleading will just waste your energy.

At this point, the IRS has already given you due notice for the last 120 days. Now, you just have to make the call.

Understand the priority

Uncle Sam is not forgiving. If you didn’t come up with a plan to ensure you claimed the correct amount of deductions, you may find yourself owing hundreds or thousands of dollars come April 15th. Here are some general tips to plan ahead or recover:

Prevent: Always claim zero when you fill out your W-4 for an employer.

Why?

When you claim zero, you are telling the federal government that you have no dependents (even though you may). What this does is it takes out the biggest possible amount from your paycheck weekly/bi-weekly/monthly to pay towards taxes.

Claiming zero is a good thing to consider because, sadly, most Americans live paycheck to paycheck. It may be better to make your monthly budget a certain percent taken from your income rather than constantly owe the government money every year.

And, if you claim zero, it’s more likely you will get that sweet refund check just in time for a summer vacation.

Also know that if the next tax season rolls around, and you’re still making payments from last year, they will conveniently (for them) take the rest of the amount owed from your refund.

Recover: When you first receive that bill in the mail, don’t throw it away in desperation or denial, thinking, “It can wait.”

It can’t. The consequences are much too severe.

Call the number on the bill immediately. Ask for a payment plan. You can take up to three years to pay off what you owe. If the amount of the monthly payment is not possible, it’s unlikely the IRS will pleasantly inform you of other options, but by law, you are entitled to use them.

Move things around

You would be surprised at how long your other bills can go unpaid. But remember, other payees can’t directly take money from your account or freeze your accounts. If other companies were to walk into your banking institution and demand your owed money, your bank cannot give it to them.

Here are some general things to know about your bills:

Prevent: You may consider rent or the mortgage payment top priority; however, even if your home loan is through your bank, they have a legally enforced waiting period. You usually have three months that you can go without making a rent payment, mortgage payment, or car payment without serious repercussions such as eviction, foreclosure, or repossession.

Each lender is different, so don’t ignore notices.

Eviction would take even longer because it’s filed through the court system. Even your landlord can’t legally force you to leave your own dwelling for not paying rent.

Recover: It may be difficult to fathom not paying the bills for the things you need to survive — shelter, a car to drive to work, food, etc.— but these payees can’t take or deny you access to your own money.

Yes, you will still owe the amount to your landlord and lending institutions in the end, but it’s better to take care of top priority responsibilities (taxes). Many times, these other payees will allow you to increase your monthly payment spread over a few months to slowly recover.

There’s always an option to get a temporary side hustle to make payments. You have to pay taxes on what is earned through part-time work as well, so be sure to research this option before you decide.

There are some bills you really can’t avoid paying such as car insurance, life insurance, renter’s insurance – if you miss a payment on these bills, you will not be covered. If something unexpected happens, there will be consequences more severe than having your accounts frozen (uncovered injuries, deaths, or property damage).

Plan ahead

Prevent: Believe it or not, the IRS works on a pay-as-you-go basis, so you can pay any amount to your federal taxes at any time during the year. The IRS has several options in paying ahead or when taxes are owed. It’s difficult to calculate the exact amount of taxes you will owe each year, but if you come across some extra funds, just pay ahead to your account.

You can also elect to have your employer withhold an additional amount regardless of your claimed deductions. This may be a better option since you would not “see” the money, and these withholdings are taken out of the gross amount before other taxes and deductions. You can make changes on your W-4 anytime during the year, and it’s generally good to review deductions and withholdings on an annual basis.

Think of it as a way of saving money and saving face at the same time.

Recover: The IRS will not humanize this process. They run a tight ship, and they are concerned only about the money owed. In fact, during the 2018 fiscal year, the IRS collected $3.5 trillion, processed 250 million tax returns, and issued $464 billion in tax refunds.

That means 13 percent of taxes paid in 2018 was refunded. Plan ahead so you can be one of those lucky individuals getting a refund.

Ultimately, the best way to recover and prevent is to stay informed of steps you must take at any point in the process.

If things get really heated, challenging the IRS will stop everything, but then look forward to retaining a tax attorney, which costs only more. We recommend this move only if the IRS is actually charging you too much and you have a way to prove it.

We sincerely hope you don’t get caught at the grocery store with hungry kids and a declined debit card when you know the funds are there. If you have been ignoring the IRS notices, don’t be surprised if this happens. Be smart and plan ahead.

Zaneta Wood is a Research Specialist and Writer for autoinsurance.org. Writing and research have been an integral component of her studies in applied anthropology, instructional technology, technical and professional communication, and adult education.

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