California Bank Levy Checklist
Understanding CDTFA Bank Levies
The California Department of Tax and Fee Administration uses bank levies to collect unpaid sales and use tax debts directly from your financial institution. A CDTFA bank levy represents a serious enforcement action that occurs after other collection attempts have failed.
This collection tool differs from wage garnishment, which takes money from your paycheck, and from a tax lien, which creates a public claim against real property and personal property you own. Bank levies target funds already sitting in your account at the moment your financial institution receives the enforcement notice.
When the CDTFA issues a Notice of Levy to your bank, the financial institution must freeze the exact amount in your account at that moment. Your bank holds these funds for ten calendar days before sending the money to the CDTFA.
Why the CDTFA Issues Bank Levies
The California Department of Tax and Fee Administration issues bank levies when you have unpaid sales and use tax, excise taxes, or special fees, and previous collection efforts have not resulted in payment. Common triggers include failing to file required tax returns, ignoring payment demands, or breaking a payment plan agreement.
Before taking this action, the agency generally sends a Demand for Payment, though this notice does not include a statutory right to a pre-levy hearing like federal procedures require. This enforcement tool collects tax debt directly from available bank account funds.
What Happens During the Ten-Day Hold Period
Your bank must freeze levied funds immediately upon receiving the CDTFA Notice of Levy.
During the mandatory ten-day holding period, you can take several actions to address the
situation
- Requesting a hardship hearing demonstrates that the levy creates significant financial
hardship for you.
- Filing a claim shows the frozen funds are exempt from levy under federal or state law.
- Making satisfactory payment arrangements with the agency can stop the levy process.
- Contacting staff directly allows you to negotiate the release of the levy before the ten-day
period ends.
After ten days pass, your bank must transfer the frozen funds plus any applicable interest to the state. Once the agency deposits these funds, you must file a Claim for Refund to request their return.
Disputing the Underlying Tax Debt
You can challenge the tax assessment itself through procedures separate from levy-related hardship hearings. If you received a Notice of Determination billing you for sales and use tax, you have thirty days from the notice date to file a Petition for Redetermination.
Filing this petition timely protects your appeal rights and allows you to present evidence that the tax debt is incorrect. A hardship hearing addresses only whether the levy creates financial difficulties, not whether the tax debt itself is valid.
The CDTFA will release a levy if you pay the amount owed in certified funds or if staff determine the levy causes significant financial hardship. Hardship hearings cannot be used to dispute the accuracy of the underlying sales and use tax assessment.
Payment Options and Alternatives
The CDTFA offers several ways to resolve tax debt and potentially release a bank levy
1. Paying the full amount due immediately using certified funds like a cashier's check or money order resolves the levy.
2. Setting up a payment plan through the CDTFA's online system or by contacting the office that sent the levy provides an alternative to immediate full payment.
3. Submitting an Offer in Compromise works if you cannot pay the full amount and will not have the means to do so in the foreseeable future.
4. Providing financial documentation showing genuine hardship that warrants levy release or reduction may help you avoid a fund transfer.
Payment plans require you to file all required tax returns on time and make scheduled payments consistently. The agency may withhold filing a Notice of State Tax Lien if you enter an acceptable payment plan that satisfies the debt within one year, follow the plan terms successfully, and have not had previous collection problems.
Rights and Protections You Have
Requesting a hardship hearing with agency staff in your local office remains an option after a levy is issued. Completing financial statement forms showing your income, expenses, and inability to pay is required for this process.
California law provides some protections for essential living expenses, though these are not guaranteed. Contact both your bank and the agency immediately to explain your situation and ask about options for releasing funds needed for critical expenses like rent or food.
Common Mistakes That Worsen Your Situation
Ignoring the Notice of Levy allows the collection action to proceed without your input. Missing the ten-day window to request a hardship hearing or claim exemptions means the bank will transfer your funds to the state. Failing to distinguish between appealing the underlying tax debt and requesting levy relief causes you to miss critical deadlines for both types of action.
Providing incomplete or inaccurate information damages your credibility and weakens your position during negotiations or hearings.
Many taxpayers cannot effectively address a CDTFA bank levy because they lack records of prior tax filings, payments, or correspondence with the agency. You should organize documentation before contacting the CDTFA to make the process faster and clearer.
What Happens After a Levy
The CDTFA can issue additional levies against other bank accounts if the first levy does not satisfy your full tax debt. Wage garnishment may also be pursued, which attaches to twenty-five percent of your net pay from each paycheck.
Other enforcement actions include filing a Notice of State Tax Lien that becomes public record, revoking your seller’s permit, or pursuing personal liability against responsible individuals in a business entity. Interest and penalties continue accruing on unpaid balances unless you pay the debt in full or reach a settlement agreement.
Facing State Enforcement or Payroll Tax Issues?
If you’ve received a state tax notice and aren’t sure how to respond, we can help you review your options and next steps.
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