The IRS can garnish your Social Security benefits and other federal payments by a manual levy or through the automated Federal Payment Levy Program (FPLP). However, the IRS cannot garnish lump-sum death payments, children’s benefits, and Supplemental Security Income (SSI).
A court order is not needed for the IRS to seize your Social Security benefits for unpaid tax debt. Before the IRS can garnish your Social Security benefits, they will first send you a notice specifying your tax balance due, and the need to pay, or make arrangements to pay, your tax debt. This notice also indicates your right to appeal if you had not been issued a notice before. If you fail to respond, the IRS will send you a Final Notice – Notice of Intent to Levy and Notice of Your Right to a Hearing, CP 90 or CP 297, if another Final Notice has not already been issued. If you don’t respond to the notice within 30 days, the IRS will transmit the levy electronically to the Bureau of Fiscal Service (BFS) to initiate the levy.
The IRS can garnish up to 15% of your Social Security benefits through the FPLP, or the exact amount of tax debt if it is less. Thus, if your Social Security benefit is $2,000, the IRS can seize up to $300.
In a manual levy, the IRS will leave a fixed amount for living expenses and seize the balance of the payment. The fixed amount is determined by your filing status and the number of dependents, and is updated annually. Thus, for 2022, a single taxpayer with no dependents is allowed to keep $1,079.17 per month. A taxpayer that is married, filing jointly with two dependents is allowed $2,891.87 per month.
The IRS also takes the position that because you have a fixed determinable right to receive future Social Security benefits, the levy will continue until the tax debt is satisfied, and the levy will NOT expire when the collection statute of limitation expires.
There are several avenues available to you to stop the IRS from seizing your Social Security benefits, including:
- Full Payment: Some taxpayers take out loans, borrow from retirement accounts, or find other means to pay their entire tax bill. Paying the full amount satisfies the debt and stops interest and penalties from accruing, but many taxpayers do not have the means or resources to fully pay their tax debt.
- Installment Agreement: The IRS offers full-pay installment payment programs, with payments extending to six or more years. This is a good option for many taxpayers with modest amounts of tax debt.
- Partial Payment Installment Agreement (PPIA): Similar to a full-pay Installment Agreement, this program features monthly payments until the collections statute of limitation expires, but your monthly payments are based on your ability to pay, and not your total tax liability. To qualify for a PPIA, you are required to share detailed financial information with the IRS to demonstrate that you do not have the financial resurces to fully pay your tax debt.
- Offer In Compromise: This IRS program allows you to settle your tax debt for less than the full amount owed. The program requires a lump sum payment, or monthly payments for 24 months. You must meet the strict IRS financial standards, and submit detailed financial information to the IRS in order to qualify for this program.
- Currently Not Collectible: For taxpayers in dire financial situations, the IRS will suspend collections activities and put your account into a “Currently Not Collectable” (CNC) status. To qualify, you need to submit financial information proving you have insufficient assets and income to pay your tax debt. The IRS will review your account periodically, and may resume collections activities if your financial status improves.
- Bankruptcy: If you have older tax debt, it may be dischargeable in a bankruptcy action. If you have other debts in addition to your tax liability, bankruptcy may be an option to address and resolve all of your debts. As bankruptcy laws are complex, it’s best to talk with a bankruptcy professional before committing to this option.
- Innocent Spouse Relief: If the tax liability is completely due to your spouse or ex-spouse’s actions, you may be eligible for the innocent spouse program. You must meet strict IRS regulations before innocent spouse relief can be granted.
- Appeal the Levy: if you disagree with the levy on your Social Security benefits, you can appeal, but you only have a limited time to submit your appeal. Your IRS levy notice should describe the steps needed to file an appeal, and the date by which the appeal must be submitted. You can also submit a request for a Collection Due Process hearing after the levy has been executed by filling out and submitting IRS Form 12153 (Request for a Collection Due Process or Equivalent Hearing).
- Get Professional Help: An experienced tax professional organization, such as the Willi Law Office can assist you in determining the best remedies to quickly address and resolve your tax problems.
The Willi Law Office, LLC, has been providing personalized tax and legal services to individuals and businesses in Westerville and Central Ohio for over 20 years.