As the Baby Boomer generation retires at higher and higher rates every year, the importance of Social Security income (SSI) is rapidly rising. For many retirees, it will be the only income they have except for any savings or investments they may have put in place years before. And, given that only about half of Americans currently save for retirement at all, for many retirees, SSI will be the only income they have.
With this in mind, the question of whether anyone, including the IRS, can garnish SSI checks or otherwise take SSI income is a hugely important one. Here’s what you should know about the IRS and SSI.
Unfortunately, when the IRS comes into the picture, the answer is yes. The IRS can garnish SSI wages if the seniors receiving them have unpaid tax debts. This is facilitated through a program called the Federal Payment Levy Program (FPLP).
In this program, if you have outstanding tax debt, your Social Security benefits will be levied 15% to pay down that debt. This levy includes any benefits you receive for old age or survivorship.
It should also be noted that while in the past, the IRS would not levy Social Security income below $750 per month, the enacting of the FPLP now ensures that they will levy SSI benefits of all amounts if their recipient is tax delinquent. That’s the bad news.
The good news is that there are several potentially mitigating factors that can protect your income. For one, SSI income you receive because of disability insurance cannot be levied at all. Additionally, if you fall below a certain income level according to the poverty rules of the Department of Health and Human Services, you may be exempt from these levies no matter how much tax debt you have.
Lump-sum death benefits and other benefits paid to your children will not be levied, either. And while the IRS does have the ability to levy your SSI checks, no other creditors can legally do this.
If you are tax delinquent, and the IRS intends to garnish your Social Security, you will receive two written notices from them letting you know. (As always, they will be in writing. If you receive a phone call from the IRS, it’s a scammer. Hang up!)
These notices will also give you the option to appeal the levy if desired. Either way, you will have 30 days from receiving the second notice to either appeal or pay the tax debt before the IRS begins the levy.
The Internal Revenue Service (IRS) is legally entitled to take your Social Security to satisfy the tax debt. However, there are limitations in place to keep you protected from losing everything.
Before the new FPLP program, the IRS could not touch any account that was $750 or below per month. However, the FPLP program, which was passed in 2000 changed that stipulation, giving the IRS freer reign over collecting back taxes. Now, the IRS has considerable more power when it comes to your retirement income. The program enables the tax agency to go after Social Security related to 1) federal old-age and survivors trust funds or 2) disability insurance benefits.
The IRS is legally allowed to take up to 15% of your Social Security payments to resolve tax debt. In addition to having the ability to dip into your Social Security benefits, it can also go after your:
However, the IRS cannot touch lump sum death benefits or benefits paid to children. The IRS also cannot levy Social Security income made through SSI payments (under Title XVI) and payments with partial withholding to repay the debt owed to Social Security. Lastly, there are also limits for those living at or under the poverty line.
The U.S. Department of Veterans Affairs delivers compensation to veterans that are disabled while actively serving in the military. This compensation is a fundamental right of military veterans, and many need VA disability benefits to survive.
Fortunately, the Internal Revenue Service agency cannot withhold or levy federal taxes from your VA disability benefits. The same rules apply if the IRS is attempting to collect benefits to satisfy a tax debt. By law, the IRS cannot levy VA disability benefits or any government checks you receive as public assistance (i.e. VA pension).
While your VA disability benefits are exempt from tax levies, the same is not true of many other things you might own, such as vehicles, real estate, bank accounts, and wages you may be receiving from a current occupation.
The current parameters of the Federal Payment Levy Program (FPLP) and other tax law provide the IRS with plenty of leverage when it comes to collecting tax debt. Tax liens and levies are serious matters that can put you in a predicament.
It is possible to lose your car, business, savings, retirement benefits, and a portion of your current wages because of tax levies. However, to put a tax levy into effect, the IRS needs to follow a set legal procedure.
First, the IRS must send you a Final Notice of Intent to Levy. The formal letter notifies you that the IRS is currently pursuing legal action in the form of a tax levy. It also introduces your legal rights and states how you can appeal the decision.
Unfortunately, the IRS provides you very little time to appeal a decision. Taxpayers only have 30 days to respond to a Final Notice of Intent to Levy before the IRS may begin targeting your finances and assets, including Social Security (SSI) income.
Retirees have a few choices when it comes to resolving tax debt before a levy is placed on wages, property, and assets:
It is extremely important that taxpayers remember that the worst decision you can make is to ignore the Final Notice of Intent to Levy and do nothing at all. Simply dismissing the tax debt and warnings from the IRS is not going to make things disappear—once the IRS sends you a final notice, they are prepared to act and will undoubtedly go after your assets.
After the 30-day grace period, the IRS is allowed to seize your assets. Often, it starts with a bank levy which means your accounts are frozen. You cannot touch the funds, and after an additional 21 days, the government starts withdrawing funds to resolve tax debt. If that doesn’t satisfy the debt, the IRS comes after other forms of compensation, like wage garnishments or SSI income.
As mentioned, the IRS may levy 15% of your Social Security income from every paycheck to resolve tax debt. This is comparable to what happens when the IRS garnishes a portion of your monthly wages.
A levy on your Social Security benefits can remain in effect until the debt is paid in full. Unfortunately, a levy on your SSI income often makes it very difficult to live a normal life. Many seniors rely solely on SSI income for living expenses. After the IRS takes a 15% cut from each payment, you may find it impossible to cover all your bills with the money that is left over.
If you find yourself in a situation like this, speak to a tax professional immediately. You need a partner on your side who is willing to stick up for you and protect your SSI income from the IRS. Levy & Associates can provide tax help during this potentially stressful time.
Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.
There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.