If you receive Social Security benefits and you owe tax debt, the IRS may garnish your benefits in order to pay off your taxes. A lot depends on how far along you are in the collection process, what type of benefits you receive, and any efforts you’ve made to address your tax debt.
Learn more about Social Security levies and how you can protect your benefits with Wiggam Law – call us at (404) 233-9800 to schedule a consultation now.
Key takeaways:
- If you fail to pay your taxes on time, the IRS may levy your assets, including certain Social Security benefits.
- Benefits exempt from levy include SSI, children’s survivor benefits, and lump sum death benefits.
- The IRS sends several notices before imposing a levy.
- The IRS can only automatically levy 15% of your benefits, but no such limit exists with manual levies.
- You can use a variety of payment options to get caught up and avoid Social Security levies.
What is a Social Security Levy?
A levy is a potential consequence of failing to pay your taxes. It occurs when the IRS seizes a taxpayer’s assets to pay off their taxes, either in part or in full. When it comes to Social Security benefits, the IRS can use an automatic levy or a manual levy to seize various benefits.
Legal Authority and Limitations
In many cases, the IRS uses the Federal Payment Levy Program (often shortened to FPLP) to collect overdue taxes by taking certain benefits paid by the Department of the Treasury. This includes a wide range of payments made by the federal government, but in this case, it applies to Social Security benefits.
Per the Taxpayer Relief Act of 1997, the IRS can legally issue continuous levies on specific payments, including Social Security benefits.
Automatic levies go through the FPLP. Each week, the IRS provides the Bureau of the Fiscal Service with a file of delinquent taxpayers, which is matched to federal payment files. The appropriate amount is then automatically levied.
Statutory Limits
When the IRS uses automatic levies to seize Social Security benefits, they can only recover up to 15% of your total benefits. There are no such limits for manual levies. The IRS does exempt a certain amount of your benefits to account for reasonable living expenses.
Types of Benefits and Exemptions
The IRS may seize retirement benefits and adults’ survivor benefits with an automatic levy. They can also seize retirement benefits, adults’ survivor benefits, and disability benefits with a manual levy. The IRS cannot take a taxpayer’s Supplemental Security Income (SSI), survivor benefits paid to a child, or lump sum death benefits.
Manual Levies
In some instances, the IRS uses manual levies to take more than 15% of a taxpayer’s SS benefits. Revenue officers, who are not assigned to all delinquent tax cases, initiate manual levies.
Conditions Under Which the IRS Can Garnish Social Security
Before the IRS can levy an individual’s Social Security benefits, they must follow strict protocols and prove that they have attempted to work out alternative arrangements with the taxpayer. Social Security garnishment only occurs when a taxpayer has an outstanding federal tax liability.
There are several ways this may occur:
- A taxpayer may file a tax return that shows they owe federal taxes. If they do not pay on time, the IRS will begin attempting to collect.
- A taxpayer may fail to file a tax return. If they have income reported to the IRS, the IRS may file a Substitute for Return and bill them for the resulting amount.
- The IRS may conduct an audit, find discrepancies, and send you a bill for your adjusted amount owed.
In any of these cases, the IRS may move to levy Social Security benefits when other collection efforts fail. You may also face a Social Security levy if you are personally liable for a Trust Fund Recovery Penalty and you don’t pay it.
How Much Can the IRS Garnish From Social Security?
If you are the target of an automatic levy, the IRS can take up to 15% of your monthly benefits until your tax debt—including interest and penalties—is paid in full. This is true regardless of the amount you receive each month.
Manual levies are not limited in the same way; the IRS can take as much as it needs each month to satisfy your tax debt. However, a certain amount is exempt from seizure to account for allowable living expenses.
How to Stop an IRS Social Security Levy
Many people who receive Social Security benefits rely on them to meet their financial obligations. You can handle your tax debt in several ways to avoid a levy and ensure that you keep receiving your full benefits.
Paying Off the Tax Debt
If you pay off your tax debt, either prior to the IRS levying your benefits or after they have initiated the levy, they will no longer garnish your benefits. Additionally, penalties and interest will stop accruing.
Payment Plans
Multiple types of payment plans may be available to you. Standard short-term payment plans give you up to 180 days to pay your tax debt off in full, and long-term installment agreements spread your tax debt across 72 monthly payments. While interest will still accrue, an installment agreement can stop levies and liens.
If you cannot afford the minimum monthly payment that would pay off your tax debt in 72 months, you may request a longer term or look into a Partial Payment Installment Agreement (PPIA). Both of these options require financial disclosure. With a PPIA, you make lower monthly payments until the Collection Statute Expiration Date. The remainder of your tax debt is written off. You must be able to show that your financial situation warrants this type of payment arrangement.
Showing Financial Hardship
If you cannot currently pay off your tax debt, either in a lump sum or in monthly payments, the IRS may consider you currently not collectible. CNC status means that the IRS halts collection efforts due to the taxpayer’s financial hardship.
If the IRS finds that your financial circumstances have changed when they review your case, they can then resume collection efforts. Note that interest and penalties continue accruing during this time, so if the IRS eventually considers you collectible again, your tax bill will be higher.
Offer in Compromise
This type of payment plan allows you to settle your debt with the IRS for an amount lower than what you owe, based on your ability to pay. You may make periodic payments to pay off this amount or pay in one lump sum. The process of applying for an offer in compromise is demanding, and few applicants are approved. It’s worth talking to a tax attorney before applying to find out if you qualify.
Appealing the Levy
If the levy is unwarranted, you may request a Collection Due Process hearing or utilize the Collection Appeal Program. A CDP hearing lets you dispute the amount you owe and explore alternatives to levies and other aggressive collection actions.
A CAP request allows a taxpayer to request other payment solutions without waiting for a final notice of intent to levy. If your past-due taxes are the result of an audit, you can also request an audit reconsideration if you disagree with the audit results.
How Are You Notified of a Social Security Levy?
The good news is that the IRS generally gives taxpayers a substantial amount of time to address their tax debt before they initiate a levy. So, if you’re worried about your first notice from the IRS or new unpaid tax debt, you likely still have time to find solutions.
The first notice you’ll receive is CP14, which simply informs you of your outstanding tax debt and provides you with payment options. This notice gives you 21 days to pay your tax debt.
CP501 is a follow-up notice reminding you that you still have delinquent taxes. The deadline for this notice is usually 21 days. The IRS steps up the urgency with CP503, the second reminder that you still owe money to the IRS. Again, you have 21 days to respond.
Finally, the IRS moves on to the last part of the notification process—they send either CP298, CP91, or another Final Levy Notice. These letters both inform you that the IRS intends to levy up to 15% of your Social Security benefits. If you do not pay or make other arrangements within 30 days, the IRS can legally move forward with a levy. You can also use this time to appeal the IRS’s decision. If the 30-day window passes, you lose your right to appeal.
Note that, in some cases, you will receive CP90 or CP297. These notices inform you of the IRS’ intent to levy and remind you of your right to a hearing. You may receive either of these in lieu of CP91 or CP298.
Getting Help With a Social Security Levy
When you find out your benefits may be subject to a levy, it’s normal to panic—but you don’t want to make the mistake of doing nothing. Ignoring the notices or putting off your response only gets you closer to a levy. The sooner you take action, either by contacting the IRS or working with a tax attorney, the more options you may have.
When It’s Time to Seek Assistance
This largely depends on your experience working with the IRS and handling tax issues. For example, if you’re well-informed of the various payment options and know how to figure out which ones may be suitable for you, you may be able to handle your delinquent taxes on your own if you begin the process early.
However, most people don’t fall into this category. There’s a lot of anxiety around dealing with the IRS, which can leave taxpayers feeling overwhelmed and uncertain from the beginning. If you are uncertain about how much time you have to find a resolution for your tax debt, which options are suitable for you, and the potential outcomes of your choices, it may be time to reach out to a professional.
How an Attorney or Enrolled Agent Can Help
Talking to a tax attorney or enrolled agent may give you the guidance and support you need. Tax law is dense and complicated, and any errors you make while dealing with delinquent taxes could cost you money in interest and penalties.
Tax attorneys can look at your financial situation and tax transcript to help you decide how you want to proceed. Enrolled agents represent taxpayers before the IRS and may help you negotiate payment options.
Important Contact Information
You may find it helpful to contact the IRS if you are struggling to understand your official notices. Each notice you receive should have a phone number in the corner that you can call to talk to an agent. Otherwise, you can call 800-829-1040 to get connected to an agent.
We understand that even calling the IRS to discuss payment options can be stressful. While the IRS strives to help taxpayers avoid enforced collection actions, many people find it helpful to have their own legal representation while navigating levies and liens.
Although the thought of tackling your tax debt head-on may seem overwhelming, it’s much better than ignoring the IRS’s notices. No matter where you are in the collection process, it’s never too early or late to talk to a tax attorney and get more personalized assistance. Schedule a case consultation with Wiggam Law online or call us at (404) 233-9800 to get started.