Many people on disability, when faced with insurmountable federal taxes, ask the question, “Can IRS levy disability payments?” In short: Yes, they can. The government holds the ability to garnish Social Security benefits for delinquent liability on your federal taxes, meaning that the government can take some or all of your benefits from you.
Read on to learn more about how the IRS can levy disability payments to see how this might affect you.
While private creditors cannot levy your benefits, Title II of the Social Security Act and Section 6331 of the IRS Code list exemptions from tax liability. This law allows the IRS to act through the automated Federal Payment Levy Program or even issue manual levies.
Since the beginning of 2002, Social Security benefits from the Bureau of Fiscal Services have been subject to a levy through the Federal Payment Levy Program (FPLP). However, exceptions exist that limit the agency’s ability to garnish Social Security payments because of limitations placed by the Social Security Administration.
These levies can apply to disability program payments, retirement payments, and survivor payments. They cannot apply to lump-sum death payments, children’s benefits, and Supplemental Security Income (SSI). The IRS cannot seize your benefits for unpaid state taxes—only withheld federal taxes.
The IRS can only garnish up to 15% of your Social Security check each month. Debts for back taxes do not affect your eligibility to apply for or receive Social Security benefits. The IRS will apply the taken amount to your tax debt and continue to levy these benefits until you fully pay your taxes.
Can IRS levy disability payments that are interspersed with your other funds? Suppose you do not receive your money through direct deposit and you allow your Social Security income to co-mingle with other funds. In that case, the IRS can garnish the selected funds through your bank accounts.
You won’t have to worry about being unprepared, as the IRS will issue you several warning letters informing you that it will be garnishing your benefits for tax purposes. About 60 days after you file a return, the IRS will send a CP-14 informing you of the balance and demanding payment. Failure to reply will result in follow-ups in the form of a CP-501, CP-503, and CP-90 or CP-297.
Lastly, you will receive a CP-91 or CP-298. These serve as a formal notice that the IRS will begin to garnish your benefits. You will have 30 days from the letter’s date to resolve the payment.
Calling the Social Security Administration (SSA) is not a good idea, as this agency cannot help you with the issue. Because the IRS takes the action of levying your payments, you will need to work through its channels.
Before the IRS can begin to take property or garnish payments, it must have satisfied three conditions:
As soon as the IRS has met these stipulations, it can legally seize your property. In your situation, this could mean the garnishment of your Social Security Benefits. Partial withholding to repay might result in the levying of some, but not all, of your disability payments.
Should the IRS issue a levy before these steps happen, you reserve the right to appeal. Likewise, if you disagree that you owe back taxes, you should file an appeal with the Office of Appeals to get your situation handled as quickly as possible.
You do not need to wait to receive your CP-91 or CP-298 to contact the IRS and arrange payment. Many people in this situation refrain from contacting the IRS themselves due either to fear or an inability to pay. Regardless, you must act immediately should you receive a Final Notice.
Once you receive your notice, you have a few options:
● Fail to respond to the IRS’s statement (not recommended)
● Pay your taxes directly
● File an appeal
● Either negotiate a payment plan or submit an Offer-In-Compromise
● Apply for non-collectible status
● File bankruptcy
The IRS makes several payment options available to people in your situation; each plan depends on your ability to repay the amount.
Short-term payment plans typically give you 120 days to pay back the total amount, while longer-term plans give you periods over 120 days. Long-term plans require application fees, which is essential to consider if you already struggle to pay back your taxes.
A Partial Payment Installment Agreement (PPIA) can reduce the amount you owe over time, allowing you to make monthly payments. The IRS will determine the set amount based on your monthly income, expenses, liabilities, and assets.
An Offer-In-Compromise allows you to settle for less than you owe. Non-Collectible Status due to hardship will enable you to demonstrate your financial hardship in an attempt to apply for installment payments that simultaneously exempt you from the garnishment of your Social Security benefits.
Regardless of your tax situation, it’s always best to speak to an accredited tax professional when you’re wondering whether the IRS can levy your disability payments. Call (800) TAX-LEVY today to speak with an experienced tax and disability consultant who can work personally with you to attempt to find a solution to your tax issues.
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.