The Internal Revenue Service (IRS) can take Social Security benefits to cover your unpaid back taxes. There are a few benefits that the IRS cannot touch, but generally, the agency can take 15% of most payments. Keep reading to look at the details and learn about your options.
To get help, contact us today. We provide boutique tax resolution services. We work closely with our clients to find solutions for their unique situations. In the meantime, here’s what you need to know.
What Is a Tax Levy on Social Security Benefits?
When you owe federal taxes, the IRS can levy (seize) 15% of your Social Security benefits through the Federal Payment Levy Program (FPLP). FPLP levies are automatic, but the agency can also place a manual levy on your Social Security benefits. In that case, the agency can take more than 15% as long as it leaves an exempt amount.
However, the agency can only take Old Age and Survivor’s benefits. It cannot take Disability payments, payments to children, or lump-sum death benefits.
For example, if you have retired and are collecting Old Age benefits, the IRS can garnish 15% of your check to cover your unpaid federal taxes. In contrast, if you are collecting Disability payments from the Social Security Administration, the IRS cannot seize any of these payments.
The IRS can levy Survivors’ benefits but not benefits paid to children. For example, imagine that you are collecting Survivor’s benefits from your deceased spouse’s Social Security account, and your minor child also receives Survivor’s benefits. The IRS can garnish 15% of the benefits that you receive in your name, but the agency cannot take any part of the Social Security benefits paid in your child’s name.
What to Expect If the IRS Garnishes Your Social Security
If you have unpaid taxes, the IRS will send several demands for payments followed by a Notice of Intent to Levy. This notice explains that the IRS can seize your assets, and it outlines your right to appeal. Then, the IRS will send you notice CP91 or CP298 (Final Notice Before Levy on Social Security Benefits).
At this point, you have 30 days to respond. If you don’t pay your tax liability or make other arrangements, the IRS will start to take 15% of your payment.
How to Avoid a Social Security Garnishment on Tax Debt
To protect your Social Security benefits and other assets, you should make arrangements for your tax debt as soon as possible. If you get approved for any of the following programs, the IRS can’t levy your assets:
- Installment agreement — If you owe less than $50,000, you can set up a monthly payment plan without providing a financial disclosure to the IRS. If you owe over this threshold, the IRS will require a Collection Information Statement before approving a payment plan.
- Partial payment installment agreement (PPIA) — A PPIA lets you make monthly payments until the collection statute expiration date. This is the last date the IRS can enforce collections on the debt. After this date, the IRS lets the remaining balance expire. You must make a financial disclosure to qualify.
- Offer in compromise (OIC) — An OIC is when you pay less than you owe, and the IRS discharges the rest of the bill. You can pay in a lump sum or in installments over 24 months. To qualify, you must convince the IRS that your offer is the most you can afford to pay.
- Currently Not Collectible (CNC) — If you contact the IRS and prove that you cannot afford to pay your tax liability, the agency will mark your account as CNC. This will stop all collection actions against you, including Social Security garnishments. The IRS may review your file every couple of years to see if anything has changed.
Keep in mind that tax levies don’t start right away. If you’re filing a tax return and can’t afford to pay, you don’t have to worry about the levy starting instantly. In this situation, you should reach out to a tax attorney and discuss your options. Then, you can set up a payment plan or make other arrangements for your tax debt before the IRS starts to garnish your Social Security.
You should still file your tax return even if you can’t afford to pay your tax liability. The penalties for not paying are much lower than those for not filing. Once you file, you can request a payment plan. In fact, you can even attach a request for a payment plan to your tax return, and if you owe less than $10,000, the IRS will typically accept the request as long as you can pay off the balance within three years.
How to Stop IRS Social Security Levy
If the IRS has already started to garnish your Social Security, there are a few different ways that you can stop the levy. The IRS must remove the levy if it was issued in error or if the IRS didn’t follow the correct protocol. For example, the agency must remove the levy if the IRS didn’t send the right notices. It also must remove levies issued after the collection statute expiration date.
Additionally, the IRS is not allowed to issue levies when you have a pending request for an Installment Agreement, Innocent Spouse Relief, or Offer in Compromise. Except in limited cases, the agency can’t legally issue levies while you’re appealing an issue with the Tax Court. Finally, the agency cannot issue a levy if you’re filing for bankruptcy and a stay is in place. If any of these situations apply, the IRS must stop the levy. Contact a tax attorney to help you.
If the IRS issued the levy correctly, here are other ways that you can stop it:
- Pay the tax debt in full
- Set up a payment plan and ensure its terms don’t allow the garnishment to continue.
- Convince the IRS that stopping the levy will help you pay your taxes.
- Prove that the levy creates financial hardship and prevents you from paying your living expenses.
- Establish that the levy is against exempt assets.
As noted above, the law allows the IRS to automatically garnish 15% of your Social Security checks, but if you don’t have any other income sources, you may be able to establish that your Social Security payments should be exempt from garnishment.
What to Do If the IRS Garnishes Exempt Income
Whether you work, collect Social Security or both, a certain amount of your income is exempt from tax levies. The amount is based on the standard deduction and the number of dependents you have. As of 2023, the exempt monthly amount is $1,154.17 for a single filer with no dependents. It is $3,483.34 for a married couple filing jointly with two children. The IRS updates these numbers annually in Publication 1494.
Social Security garnishments happen automatically through the FPLP. In other words, no human agent is reviewing the garnishment to ensure it doesn’t exceed the exempt amount. If the amount left after the garnishment is less than your exempt amount, you should immediately contact the IRS or reach out to a tax attorney for help.
Keep in mind, however, that the IRS can take any amount over the exempt amount. Say you receive Social Security payments for $1,600 per month. The IRS starts levying 15%, leaving you with $1,360 per month. You reach out to the agency and establish that you should get a $1,545.84 exemption based on being a single filer with one dependent. The IRS allows you to keep this portion of your payment, and the agency reduces the levy to $54.16 per month.
A few months later, you get a part-time job. Once the IRS realizes you have a job, the agency sends a garnishment letter to your employer. Because your Social Security payment covers the full exemption, the IRS can garnish 100% of your paycheck.
What Is the Federal Payment Levy Program?
The Federal Payment Levy Program allows the IRS to seize tax debts from federal payments. Under the FPLP, the IRS can levy the following amounts until your tax debt, interest, and penalties are paid in full:
- Up to 15% of federal employee retirement annuities.
- Up to the full amount of payments to federal vendors.
- Up to the full amount of travel advancements or reimbursements for federal employees
- Up to 15% of salaries paid to some federal employees.
- Up to 15% of Social Security Old Age and Survivor benefits and Railroad Retirement benefits.
To levy these funds, the IRS sends a file with tax debt details to the Bureau of Fiscal Services (BFS). The BFS scans its database and alerts the IRS if there’s a match. Then, the IRS sends a notice of levy to the taxpayer, and if the taxpayer doesn’t respond, the levy starts in 30 days.
The majority of the payments seized through the FPLP are Social Security payments — during the first six months of 2020, 72% of the payments seized through this program were Social Security benefits.
In 2011, the IRS created a low-income filter to prevent the program from affecting low-income taxpayers, but in spite of the filter, some low-income taxpayers still end up facing levies on their Social Security benefits. If that has happened to you, contact the IRS directly or contact a tax attorney for help.
Here are answers to some of the most commonly asked questions about tax levies on Social Security benefits. The answers to these questions are all in the above sections, but we included them here as well for easy reference:
How Much Can the IRS Garnish From Social Security?
The IRS can garnish 15% of your payment. In the past, the law required the agency to leave at least $750, but now, the IRS can take 15% regardless of how much you have left.
However, you are entitled to a certain exempt amount based on filing status and the number of dependents. You should contact the IRS to stop or reduce the levy if the garnishment exceeds this amount.
Can the IRS Garnish Social Security Disability?
The IRS cannot garnish any part of your SSA disability insurance benefits. In the past, the IRS could levy disability payments, but in 2015, the law was updated to protect these payments.
Can the IRS Garnish Supplemental Security Income?
The IRS cannot garnish Supplemental Security Income (SSI). SSI is a monthly cash payment for low-income people who are disabled, blind, or over 65. Although the Social Security Administration administers the program, the benefits are not the same.
Can You Collect Social Security If You Owe Back Taxes?
Yes, you can collect Social Security benefits even if you owe back taxes. If you’ve recently become eligible for Social Security, you can sign up for benefits regardless of how much tax you owe. However, once you start receiving monthly payments, the IRS may be able to seize a portion of your payments to cover your tax debt.
Get Help if the IRS Is Garnishing your Social Security
If the IRS is garnishing your payments or if you’re worried about garnishment, contact us today. At Damiens Law, we are devoted to helping our clients find the best resolution for their unique tax problems. When you contact us, we can discuss your tax issues and help you find relief tailored to your unique situation.