How to Stop FTB Tax Levies in California

What Is a CA Tax Levy?

A tax levy is when the tax authorities seize your wages, bank accounts, and other real or personal property. California state law gives the FTB the right to garnish wages, seize personal/business property, and take away liquor licenses for unpaid taxes. The FTB can also seize assets you own that are under the control or possession of a third party.

Typically, the state starts with seizing your IRS tax refund. Conversely, if you owe federal taxes but not state taxes, the IRS can seize your state tax refund. If that doesn’t cover your unpaid taxes, the FTB will issue a withholding order to seize other assets. Although the process may vary depending on the situation, the agency tends to start with bank accounts and wages and then move to physical assets.

Types of FTB Withholding Orders

The FTB levies assets through the following types of withholding orders. 

• Personal income tax orders to withhold – If you have delinquent state income taxes, the FTB can collect 100% of all available assets up to your balance due.
• Orders to withhold for vehicle registrations – If you don’t pay your vehicle registration, parking tickets, or tolls, the FTB can also collect 100% of available assets after exemptions, up to the balance due.
• Orders to withhold for court-ordered debt collection – If you have a court-ordered debt collection, the FTB can also take up to 100% of assets after required exemptions, up to the balance due.
• Continuous order to withhold – These orders attach to payments you’re entitled to for up to 12 months. For example, wage garnishments are continuous orders to withhold.

As you can see, the FTB has the power to seize a wide variety of assets. However, only very specific assets, such as primary residences up to a certain value, vehicles up to a certain value, clothing, personal effects, work tools, unemployment benefits, worker’s compensation, certain disability payments, and certain pension payments, are generally exempt from seizure. 

Otherwise, the FTB can take nearly anything that you have, including payments due to you from other parties such as rent from your tenants and deposits from your payment processing service if you run a business that accepts credit cards. The state can also seize lottery winnings and unclaimed property due to you.

Fees for Tax Levies

When you don’t pay your state taxes, the FTB will add penalties and interest to your account. If the state moves forward with a tax levy, your balance will increase even more as the FTB adds cost recovery fees to your account. Cost recovery fees include collection fees, lien fees, and fees related to the cost of seizing and selling your property. 

How to Stop Tax Levies

The most effective way to stop a tax levy is to pay your taxes in full. If you cannot pay in full, contact the state or work with a tax professional to set up monthly payments. The FTB also allows qualifying taxpayers to settle their tax debts through the offer-in-compromise program, but to qualify, you must prove that your offer is the most that the state could collect through involuntary collections. Also, you can avoid involuntary collection by establishing that a financial hardship prevents you from paying your liability. 

Finally, if you file for bankruptcy, the FTB will typically stop all collection actions, including levies. Note that only some types of tax debt can be discharged in bankruptcy, and depending on the type of bankruptcy you file, you may need to make monthly payments on your tax debt.