Income Tax Levy — What Do You Do?

Petach Tikva and Ramat Gan — When a Levy Order Arrives

An income tax levy is one of the ways the tax authority collects unpaid tax debt. It happens when there is a discrepancy between what you reported and what the tax authority believes you owe. The order can be on a bank account, on a mortgage, or even on the receipt of a new mortgage.

If you received notice of a levy, it is not the end of the world — but you do need to act fast. Every day that passes with an active levy can be a day when your money is locked or when someone cannot obtain a new loan. Most clients we see in our practice did not know there were ways to challenge the levy or offer a settlement with the tax authority.

This guide will help you understand exactly what happened, why it happened, and what steps you can take now.

What is an Income Tax Levy and Who Does It Affect?

A levy is a court order issued by the tax authority to collect tax debt. When you owe money to income tax — whether because of a unfiled annual report, misreporting, or unpaid advance payments — the tax authority can issue an order that freezes your bank funds.

Who is typically affected by a levy? Usually:

• Self-employed individuals and business owners — who failed to file an annual report or misreported income or expenses.
• Company and association owners — whose company owes unpaid corporate tax.
• Employees — in rare cases, when there are errors in deductions or an unfiled tax refund.
• New immigrants and Israelis abroad — who failed to properly report income or foreign assets.

The levy can be placed on a bank account (funds are frozen), on a mortgage (a bank cannot secure a new loan), or even on another financial institution where you hold funds.

How an Income Tax Levy Works — Step by Step

To understand how to deal with a levy, it's important to first understand how it begins and how it progresses:

1. Tax Assessment — The tax authority sends you a demand for payment (usually by registered mail or through My Tax). You must pay within a specified period (usually 30 days).
2. Non-Payment — If you don't pay on time, the tax authority can issue a levy order. This doesn't happen without prior notice, but such notice can be unclear or missed.
3. Levy Notice — You receive an official notice (usually by registered mail) informing you of the levy. It includes the amount of debt, interest, and instructions for objecting.
4. Freezing of Funds — The tax authority contacts your bank (or another financial institution) and the levy order goes into effect. Funds in your account may be frozen.
5. Right to Object — You have the right to object to the levy within a specified period (usually 30 days from notice).
6. Collection or Settlement — If you don't object, or your objection is rejected, the tax authority can use the levy to collect the debt, or you can propose a payment arrangement.

What's important to remember: You have rights in this process. You can object, you can propose an arrangement, and you can request relief if you cannot pay right now.