Colorado Notice of Bank Levy Checklist
A Colorado Notice of Bank Levy is a formal document from the Colorado Department of Revenue, informing you that the state intends to levy money directly from your bank account to collect unpaid state tax debt. This notice represents an advanced stage of collection efforts: the state has already tried other methods and is now using direct collection actions.
Receiving this notice does not mean your money is gone yet, but it does mean you have a limited window to respond before the state contacts your bank. Understanding what this notice says and what you need to do next is critical because your actions now can affect what happens to your account and your ability to resolve the tax debt.
This article explains Colorado tax levies and provides a practical checklist for responding to this serious tax notice.
What This Notice of Levy Means
The Colorado Department of Revenue is informing you that it has decided to levy your bank account because you owe unpaid state taxes, and previous collection efforts have not resulted in payment. A levy is a legal action that allows the state to demand money from a third party (in this case, your bank) to satisfy a tax debt you owe to Colorado.
This is one of the most direct debt collection tools the state has, indicating that the Department of Revenue believes you have not responded adequately to earlier tax notices or payment arrangements.
Once the state sends the levy notice to your bank, the process moves quickly. Unlike wage garnishment (which continues over time), a bank levy is typically a one-time transaction.
Why the State Sent This Notice
The Colorado Department of Revenue typically sends a Notice of Bank Levy after you have not responded to or paid the amount requested in earlier notices. The state follows a sequence outlined in Colorado Revised Statutes: assessment of the tax debt, notice of the debt, demand for payment, and then enforcement actions, such as tax levies. The exact trigger for this specific notice depends on your account history with the state.
Common reasons include failure to file a tax return, failure to pay taxes as shown on a return, or failure to make payments under an agreed-upon payment plan. The state's internal systems track unpaid debts and overdue response periods through Colorado Revenue Online and other databases. When specific thresholds are met, the collection staff moves the account toward levy action.
What Happens If You Ignore This Notice
If you do not respond to this notice or contact the Colorado Department of Revenue before the levy takes effect, the state will proceed with bank account garnishment. This means the state will formally request that your bank freeze and transfer the funds in your account to the state to pay your tax debt. Colorado bank levies are one-time transactions: once the state sends the levy to your bank, funds will be withdrawn from your account.
If there are not enough funds in the account to pay the total outstanding debt, the levy can withdraw the full amount saved in the account. This includes withdrawing funds from any jointly held bank accounts at the institution if you are listed as an account holder. After the levy takes the money, you will need to contact the department to resolve any remaining balance.
What This Notice Does Not Mean
This notice does not mean the state has already taken money from your account; it is a warning that they intend to do so. It does not mean you have no options, but your options are limited and time-sensitive. It also does not mean that other IRS collection actions or state collection actions have automatically been taken against your wages through wage garnishment, personal property, or other assets.
A bank levy is a specific enforcement tool and does not trigger all enforcement actions at once. However, please note that once a levy notice is issued, it cannot be paused, reversed, or otherwise held for any reason under Colorado law.
Checklist: What to Do After Receiving This Notice
The steps below are factual actions you can take to understand your situation and respond to the notice. This checklist is informational only and describes typical administrative responses to a Notice of Bank Levy.
Step 1: Read the Entire Notice Carefully
Find and read every page of the notice you received. Look for the date of the notice, the tax year or tax period the debt is for, the amount of the tax debt, the name of the account holder listed, the date the levy will take effect, any phone number or contact information for the Colorado Department of Revenue, instructions for payment arrangements, and the name of the tax type (sales tax, use tax, income tax, etc.). Write down the key dates and amounts.
Keep the notice in a safe place with other necessary documents related to your tax return and tax debt. You may need to reference this notice multiple times during the resolution process.
Step 2: Verify the Tax Debt Is Actually Yours
Check whether you recognize the tax debt, tax year, and amount listed. Ask yourself: Is this for a business you own or a personal return you filed? Is the tax year correct? Do you remember filing a return for that year? Have you received any other notices about this debt before this one? If you are certain the notice is intended for someone else or contains incorrect information, it is still essential to know. Write down any errors or questions to discuss with the Department of Revenue.
Step 3: Gather Documents Related to the Tax Debt
Look for any earlier notices from the Colorado Department of Revenue about this debt, copies of tax returns you filed for the year in question, records of any payments you made, and documentation of any previous payment plan arrangements you made with the state. Even if you cannot find all of these, write down what you do see. Having documentation ready when you contact the state will help resolve issues faster.
Step 4: Note the Deadline for Response
The notice should state when the levy will take effect. This is typically your deadline to contact the state. Write this date down in multiple places: your calendar, phone reminders, and on the notice itself.
Do not wait until the last day. Contact the state within a few days of receiving the notice to maximize your options.
Step 5: Contact the Colorado Department of Revenue Immediately
Call or write the phone number or address listed on the notice. Be prepared to provide your name, Social Security number or business ID number, and the account number or reference number from the notice. Explain whether you want to dispute the debt or discuss payment options.
Listen carefully to what the state representative tells you about your options and timeframes. Keep a detailed record of the date you called, the time you called, the name of the person who answered or helped you, and what they said about next steps.
Step 6: Understand Your Limited Options
When you contact the department, understand that once a levy notice is issued, it cannot be paused, reversed, or otherwise held for any reason under Colorado Revised Statutes. To stop a wage levy or bank account garnishment, only a bank or cashier's check, or money order can be accepted, and the payment must cover the full balance due. Payment plans do not prevent levies from being issued.
If you cannot pay the full amount, you can still discuss payment arrangements for any remaining balance after the levy, but this will not prevent the current levy from proceeding. You may need to complete Form DR 6596 (Statement of Economic Hardship) if the levy causes economic hardship, though this applies primarily to wage garnishment situations.
Step 7: Understand Hearing Rights and Collection Due Process
Colorado taxpayers have the right to request an administrative hearing to protest a Notice of Deficiency or rejection of a refund claim. This must be done within 30 days of mailing the notice, as specified in Colorado Revised Statutes Section 39-21-103. However, these hearing rights apply to the underlying tax assessment, not to the levy action itself.
If you did not protest earlier notices about this debt, your options to challenge the levy now are limited. Colorado does not have the same Collection Due Process hearing rights as those applicable to federal Internal Revenue Service levies under federal law. Ask the Colorado Department of Revenue representative about the options that remain available to you.
Step 8: If You Can Pay in Full, Do So Immediately
If you can pay the full debt before the levy date, please do so immediately using certified funds, such as a bank cashier's check or money order. Do not mail your payment if time is short; ask the state representative where you can deliver it in person or how to expedite payment through Colorado Revenue Online. Full payment is the only way to stop the levy once the notice is issued.
Step 9: Consider Whether You Qualify for Economic Hardship Relief
If the levy or wage garnishment causes economic hardship, you may request a reasonable accommodation for wage levies. To request an accommodation review, you must submit Form DR 6596 (Statement of Economic Hardship), Form DR 6597 (Waiver of the Statute of Limitations), copies of your two most recent paycheck stubs, contact information for your payroll department, and all unfiled tax returns.
Note that this process primarily applies to wage garnishment, rather than bank levies. Economic hardship relief does not automatically stop a bank levy, but it may provide relief from ongoing wage garnishment if that is also in place.
Step 10: Keep Records of All Communications
Save the original notice, copies of letters or emails to or from the state, notes from phone calls (date, time, person's name, what was discussed), proof of any payments you make, and any written communication about payment arrangements. These records protect you in the event of disputes later. Organized documentation is crucial when handling tax collection matters.
Step 11: If the Levy Occurs, Document What Happened
If the state proceeds with the levy, contact your bank and inquire about the status of your account. Ask the bank for a record of the levy and the amount taken. Contact the Colorado Department of Revenue and ask for a record of what was collected, including the Application of Funds showing how the money was applied to your debt.
Ask what balance, if any, remains on the debt. Ask what your next steps are. Please note that levied funds cannot be refunded once they have been collected.
Common Mistakes to Avoid
● Waiting until the last day before the levy date to contact the state is a common mistake. Call within a few days of receiving the notice to preserve your options.
● Do not assume the debt is incorrect without verifying your records; instead, contact the state to confirm the details.
● Do not assume a payment plan will stop the levy; once issued, levies cannot be paused under Colorado laws.
● Do not ignore the notice because you think you cannot pay; contact the state immediately, regardless of your financial situation.
● Do not fail to keep records of communications; you may need proof of what was discussed if disputes arise.
Frequently Asked Questions
What if the debt on this notice is not mine?
Contact the Colorado Department of Revenue immediately with your name, Social Security number, and the notice reference number. Tell them you believe there is an error. Ask them to verify the account ownership and debt before the levy date. Do not assume the mistake will be found without your action.
Can the state levy money in a joint bank account?
Yes. The Colorado Department of Revenue states that a levy can withdraw funds from any jointly held bank accounts at the institution if the taxpayer is listed as an account holder. If you have a joint account, the levy can take those funds even if the other account holder does not owe the tax debt.
If the state levies a judgment against my bank account, will my checks be returned for non-sufficient funds?
Yes. Once a levy is applied and money is removed from your account, any pending checks or debit card transactions may fail if there are insufficient funds remaining. You will likely face overdraft fees from your bank in addition to the impact of the levy itself. This is one reason to contact the state before the levy date.
Can I set up a payment plan after receiving this notice?
You can discuss payment arrangements with the Colorado Department of Revenue, but please note that payment plans do not prevent levies from being issued once the notice is sent. The levy will proceed unless you pay the full balance with certified funds. Any payment plan you negotiate would apply to remaining balances after the levy occurs.
Are my Social Security benefits or other federal benefits protected from state levy?
Federal benefits, such as Social Security benefits, Supplemental Security Income, and certain other exempt benefits, are protected under federal law. However, these protections are complex and depend on specific circumstances. Contact the Colorado Department of Revenue to determine if your particular income sources qualify for protection. Do not assume protection without confirming.
What is the difference between a bank levy and wage garnishment?
A bank levy is typically a one-time transaction that withdraws funds from your bank accounts on a specific date. Wage garnishment is a continuous process: it attaches to your wages over time until the debt is fully paid. Colorado generally sets wage garnishment at 25% of disposable earnings for tax levies. Both are collection actions, but they work differently.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance
