Many taxpayers face Internal Revenue Service (IRS) garnishments. IRS garnishments take different forms depending on each client’s financial situation, and the IRS can garnish your wages, your bank accounts, and other income sources. Those with substantial assets or disposable income potentially face significant IRS collection efforts for back taxes. One commonly held belief among many taxpayers is that Social Security benefits are exempt from garnishment by the IRS. In this article, we explore IRS garnishments as they relate to Social Security benefits, including essential procedures and tips. Social security income covers retirement, survivors, and disability can be levied but not SSDI or Social Security Disability Insurance.
Can the IRS Garnish Social Security Payments?
Yes. Since the beginning of 2002, Social Security benefits paid out by the Bureau of Fiscal Services are subject to a levy through the Federal Payment Levy Program (FPLP). However, there are several exceptions to the IRS’s ability to garnish Social Security payments. The IRS can only garnish a specific percentage of your social security check each month. It is also important to note that owing back taxes does not affect your eligibility to apply for or receive Social Security benefits. Important to know, generally lump sum death benefits and benefits children receive are not within the FPLP.
How Much Can the IRS Garnish Social Security? IRS SSI Levy Limits?
Under the FPLP, the IRS can garnish up to 15% of your Social Security benefits each time you receive your check.The IRS will apply this amount to your taxes owed. The IRS will continue to garnish your benefits until you pay your back taxes in full. However, in certain cases a paper levy issued on a 668-W to the SSA, also known as a manual levy, can be enacted by anIRS collection employee (generally a RO)can make this levy higher than 15%. It is uncommon that both willl incur simultaneous(FPLP and a Manual Levy) but it is possible.
What Events Happen Before the IRS Garnishes Social Security?
The good news is that the IRS will give you advance notice before garnishing your Social Security benefits. The IRS will first send you a letter of their intent to levy.Once you receive the Final Notice of Intent to Levy which may beLetter 1058, Letter 11, or CP90, you will have 30 days to respond to the IRS or request a Collection Due Process hearing (appeal rights) before the IRS cangarnish your Social Security benefits.If you do not agree that you owe back taxes, you can file an appeal with the Office of Appeals. The Office of Appeals is an independent organization within the IRS that handles tax disputes. If you fail to pay the past due taxes or enter into a repayment plan or another resolution, or you fail to request a CDP hearing or appeal, after 30 daysthe Social Security Administration can begin withholding 15% from your monthly check. In fact, the IRS will generally follow up withCP91 or CP298informing the taxpayer that their social security benefits will be garnished by 15%. This letteris called aNotice Before Levy on Social Security Benefits.
Can the IRS Garnishment Social Security Disability Payments (SSDI)?
No. There are several notable exceptions to the IRS’s ability to garnish Social Security benefits. The following types of benefits are excluded from garnishment:
- Social Security Disability Insurance Benefits
- Supplemental Security Income (SSI) payments and payments with partial withholding to repay liabilities owed to Social Security
- Taxpayers whose income falls below poverty guidelines established by the Department of Health and Human Services
- Lump-sum death benefits and benefits paid to children
In the event you receive a Notice from the IRS and any of the above apply to you, notify the assigned IRS caseworker immediately.
Can Social Security Be Garnished for State Taxes Owed?
Fortunately, for those taxpayers that owe back taxes to a state government, states do not have the same broad collection powers as the IRS, at least when it comes to Social Security benefits. Likewise, Social Security benefits are exempt from garnishment for most types of liabilities. For instance, if you owe medical bills, credit cards, or personal loans, your creditors cannot garnish your benefits. There is one crucial point to keep in mind, however. If you do not receive your money by direct deposit and commingle your social security income with other funds, it is possible the IRS could take your benefits through a bank account garnishment. Thus, if you owe back taxes to the state, they could indirectly garnish your Social Security benefits by levying your bank account. You will then be forced to prove which funds are attributable to your Social Security benefits to claim the funds exempt.
Tax Resolution Options to Stop the IRS from Garnishing Social Security or to Release the Levy
You do not have to wait until you receive a CP91 or CP298 Notice to contact the IRS to make payment arrangements. Many taxpayers fail to be proactive out of an inability to pay or fear of the IRS. However, once you receive a Final Notice from the IRS, it is vital to act immediately. If you receive a Notice, here are a few common choices taxpayers have:
- Ignore the Notice
- Pay the back taxes
- File an appeal
- Negotiate a payment plan or submit an Offer-In-Compromise
- Apply for non-collectible status
- File bankruptcy
Do Nothing
Of the above options, ignoring the Notice is the worst course of action. After 30 days from your receipt of the Notice, the IRS will begin garnishing your monthly check. Hiding from an IRS tax debt is nearly impossible. Based on the collection statute of limitations, the IRS has 10 years to collect your tax debt. Needless to say, it would be impossible to hide if you're receiving Social Security checks because that means that the government knows your bank account number and address to send the monthly checks.
Paying the full amount owed is the best option to avoid or release a levy. However, this is not a realistic choice for most people. In addition to the original amount owed, you may be liable for penalties and interest. We discussed above the right to file an appeal. The CP91 or CP298 Notice will advise you of your appeal rights. Filing a tax appeal is an effective method to challenge the amount of back taxes or to buy yourself some extra time to work out a resolution with the IRS before a garnishment.
For many taxpayers, the most suitable option is to negotiate a payment plan or submit an Offer-in-Compromise to the IRS.
Payment Plans
The IRS offers several different types of payment plans. Which payment plan you qualify for depends in large part on your ability to repay the tax. One option is a short-term plan requiring payment in full within 120 days. Long-term payment plans allow you to make payments over a period exceeding 120 days. Long-term plans require application fees, which vary by how you set up the payment plan (e.g., online vs. by correspondence). Another option to consider if you cannot make the minimum monthly payment plan on a regular payment plan is a Partial Payment Installment Agreement. This plan can reduce the amount you owe over a period of timebut also allows the taxpayer to make monthly payments. However, the IRS calculates your ability to pay, which the IRS obtains from assessing your monthly income, expenses, as well as liabilities, and assets.
Offer in Compromise
An Offer-In-Compromise (OIC) allows you to settle your back taxes for less than you owe. Applying for and obtaining an OIC can be a complicated procedure. Generally, the IRS will accept an OIC where the amount offered meets their minimum payment requirements, and the taxpayer is current on all tax filing requirements.
Non-Collectible Status (Hardship)
Non-Collectible Status (CNC) is another option for you when the IRS is in the process of attempting to collect the taxes owed. To obtain CNC status, you will need to demonstrate financial hardship to the IRS. The IRS will look at your disposable income and assets to determine whether you can afford to make installment payments. If you are designated CNC, you will receive a tax deferment and stay from efforts to garnish your Social Security benefits.
Bankruptcy
If you have significant personal liabilitiesin addition to taxes owed, you may want to consider bankruptcy. Depending on the type of taxes owed, bankruptcy may be an option to deal with back taxes. If the taxes owedis more than three years old and the IRS assessed taxes at least 240 days before the filing of a bankruptcy case, the liabilities can generally be discharged. If you do not satisfy the requirements or are otherwise ineligible to file under chapter 7, it is possible to pay back taxes over a 3 to 5-year period with Chapter 13. Consult a bankruptcy attorney for more information in this situation.
Whatever remedy you choose, it will be necessary for the IRS to release any levy. You will need to obtain a release order from the IRS. The Social Security Administration will then need to process the release. It can take up to several months before you see the release reflected in your Social Security check.
An IRS garnishment can be a highly stressful process. In addition to losing a portion of your monthly income, IRS regulations and procedures can be challenging to understand. If you need help with a Social Security garnishment request a free consultation today to get your options and determine if you want to leverage a tax professional.
