Key Takeaways:
- The IRS can levy up to 15% of Social Security retirement and survivor benefits to collect unpaid federal taxes.
- Supplemental Security Income (SSI), survivor benefits for children, and lump-sum death benefits are fully exempt from levy.
- Social Security Disability Insurance (SSDI) is no longer automatically levied through the Federal Payment Levy Program (FPLP) as of October 5, 2015.
- In rare high-debt or prolonged noncompliance cases, the IRS may issue manual levies, which can exceed the 15% limit.
- Notice and appeal rights are required before levies start, giving taxpayers typically 30 days to respond, dispute, or arrange payment.
- Federal benefits may also be seized for non-tax debts under the Debt Collection Improvement Act of 1996.
Social Security benefits provide a crucial lifeline to millions of Americans, especially retirees and disabled individuals. Owing back taxes does not prevent you from applying for or receiving these benefits. However, once payments begin, the IRS has the legal authority to seize up to 15% of your monthly Social Security retirement. They can also levy disability benefits to cover unpaid tax debts. Certain benefits, like Supplemental Security Income (SSI), are exempt from levy. This overview explains the IRS’s levy authority, limits, exemptions, protections, and practical steps to protect your income.
Understanding Levies
A levy is the IRS’s legal seizure of your property or rights to property to satisfy a tax debt. Unlike a lien, which is a claim against your property, a levy is an actual collection action. Money can be taken directly from your wages, bank account, or, in certain cases, a portion of your Social Security benefits. The IRS generally uses levies as a last resort after sending multiple notices and giving you a chance to resolve the debt. However, once in place, they can continue until the balance is paid or another arrangement is made.
The Federal Payment Levy Program (FPLP) and Exempt Benefits
The Federal Payment Levy Program (FPLP) is the IRS’s automated system to collect unpaid federal taxes from certain government benefits. Under this program, the IRS can automatically withhold up to 15% of Old-Age (retirement) and Survivors Insurance benefits. As of October 5, 2015, Social Security Disability Insurance (SSDI) benefits are no longer systemically levied through the FPLP.
Not all Social Security payments can be touched. Some benefits are fully exempt from levy:
- Supplemental Security Income (SSI): Funded by general tax revenues, SSI is completely protected from IRS levy.
- Survivor benefits paid to children: Benefits for minor children after a parent’s death cannot be levied.
- Lump-sum death benefits: One-time payments made to eligible survivors after a worker’s death are also exempt.
In addition to tax collection, Social Security benefits may be subject to withholding under the Debt Collection Improvement Act of 1996 (DCIA). This law allows the U.S. Treasury to seize Social Security payments to satisfy delinquent non-tax debts owed to other federal agencies. While FPLP is specific to tax debts, the DCIA highlights that federal benefits can be accessed for other types of federal obligations as well.
Manual Levies on Social Security Benefits
The Federal Payment Levy Program (FPLP) is the most common method the IRS uses to collect back taxes from Social Security. However, there are rare situations where the agency may issue a manual levy instead. A manual levy is not automated and is initiated directly by an IRS revenue officer. This usually happens in cases of high-dollar tax debts or prolonged noncompliance. Unlike the FPLP, a manual levy can target a larger portion of your Social Security income, including retirement, adult survivor, and in some cases, disability benefits. Although manual levies are uncommon, they can be financially devastating.
The Notification Process for Social Security Levies
Before the IRS can levy your Social Security benefits, they are legally required to follow a clear notification process. This begins with sending multiple notices of intent to levy. Each notice outlines the IRS’s plan to seize a portion of your payments. These notices also include information about your appeal rights, including the ability to request a Collection Due Process (CDP) hearing. This allows you to dispute the levy or propose alternative payment arrangements, like installment agreements or an Offer in Compromise (OIC). Typically, you have 30 days from the date of the final notice to act.
How the IRS Can Access Your Social Security Payments
Once a levy is issued, the process moves through the Social Security Administration (SSA). The IRS sends a levy notice to the SSA, instructing them to withhold a percentage of your monthly benefit. The SSA then deducts the levied amount, up to the allowed 15%, and forwards it to the IRS. You receive the reduced benefit payment each month until the debt is resolved, expires under the collection statute, or another arrangement is made.
Which Social Security Benefits Can Be Levied?
The IRS can levy:
- Social Security retirement benefits
- Social Security Disability Insurance (SSDI) benefits
The IRS cannot levy:
- Lump-sum death benefits
- Supplemental Security Income (SSI)
- Survivor benefits for children
How Much Can the IRS Levy?
The IRS can levy up to 15% of your monthly Social Security retirement and survivors benefits under the Federal Payment Levy Program (FPLP). However, Supplemental Security Income (SSI) and certain survivor benefits are exempt from levy, and while disability insurance benefits were previously subject to levy, the IRS no longer systemically levies these through the FPLP.
For example, if you receive $1,500 per month in Social Security, the IRS could levy up to $225 each month to satisfy your tax liability. The remaining 85% stays with you. This 15% cap is important because it protects you from losing your entire benefit, which many retirees and disabled individuals rely on for daily living expenses. Still, losing any portion of your income can be a serious financial strain.
Protections in Place for Beneficiaries
While the IRS has the power to levy Social Security benefits, there are several protections in place for beneficiaries.
- SSI Payments Are Exempt: If you receive only Supplemental Security Income (SSI), the IRS cannot levy any of those benefits for tax bills.
- Notice and Hearing Rights: Before the IRS levies your benefits, they must send you a Notice of Intent to Levy and provide an opportunity to request a Collection Due Process (CDP) hearing. This hearing lets you dispute the amount, challenge the levy, or propose alternatives like installment agreements.
- Collection Statute Expiration Date (CSED): The IRS generally has 10 years to collect any taxes owed. After this period, they lose the legal authority to collect, including levying Social Security benefits.
- Other Sources Can Be Levied: Even if only 15% of Social Security benefits can be levied, the IRS can also levy other assets such as wages, bank accounts, or retirement accounts, which can compound financial difficulties.
- Hardship Considerations: If paying your tax balance creates undue hardship, you may qualify for relief options (covered below) that can stop or reduce levies.
What Happens if You’re Facing an IRS Levy on Social Security?
Getting notified of an IRS levy on your Social Security benefits can be stressful, but you do have rights and options. Once the IRS issues a levy, they send your Social Security Administration (SSA) a levy notice. The SSA then withholds the levied amount from your monthly benefit and sends it directly to the IRS. Because Social Security is often the primary income source for many, this levy can feel devastating, but you don’t have to accept it without a fight.
Steps to Take If You Face an IRS Levy on Social Security
Respond to IRS Notices
Ignoring IRS notices can lead to serious consequences. If you’ve received a notice of intent to levy, this is a warning that the IRS is preparing to take action. You have 30 days from the date of the final notice to request a CDP hearing, which can stop the levy process temporarily while you dispute the debt or seek a resolution.
Consider an Offer in Compromise (OIC)
If you cannot pay your tax debt in full, you may qualify for an Offer in Compromise, where the IRS agrees to settle your tax debt for less than the full amount owed. However, this process requires demonstrating financial hardship or an inability to pay the full debt within a reasonable time.
Set Up an Installment Agreement
If you can afford to pay your debt in installments, entering into a payment plan with the IRS can help you avoid a levy. By agreeing to a payment arrangement, the IRS will generally stop collection efforts, including garnishment of your Social Security benefits.
Request “Currently Not Collectible” (CNC) Status
If your income is very low and paying the tax debt would create a severe financial hardship, you can request CNC status. While this doesn’t erase the debt, it temporarily stops the IRS from collecting it, including preventing a levy on your Social Security payments.
Seek Professional Help
Tax laws and IRS procedures can be complicated. Consulting a qualified tax professional or tax attorney can help you understand your options and negotiate with the IRS on your behalf.
Preventing a Levy on Social Security
To avoid the stress and financial hardship of IRS levies, proactive steps are essential:
- File Taxes Timely: Always file your tax returns on time to avoid penalties and interest.
- Pay Taxes or Arrange Payment Plans: If you owe taxes but cannot pay in full, set up a payment plan early. The IRS prefers repayment arrangements over levies.
- Communicate with the IRS: Respond promptly to IRS notices and explore options such as OIC or CNC.
- Maintain Records of Income and Expenses: This can help demonstrate hardship if needed.
- Consider Professional Advice: Tax professionals can negotiate with the IRS and help you avoid levy actions.
What About State Tax Agencies?
It’s worth noting that state tax authorities generally cannot levy federal Social Security benefits under the FPLP, but some states have their own rules for garnishing state tax debts. If you owe state taxes, check your state’s tax agency policies.
Frequently Asked Questions
Can the IRS freeze my Social Security?
The IRS cannot freeze your entire Social Security check, but it can automatically deduct up to 15% each month if you owe back taxes. SSI payments are protected and cannot be frozen or garnished by the IRS.
How exactly do I request a Collection Due Process (CDP) hearing, and what’s the timeline?
You can request a CDP hearing in writing or by calling the IRS contact listed on your notice. You generally have 30 days from the final notice to submit your request, which temporarily halts levy action while your case is reviewed.
What documentation is required when applying for Currently Not Collectible (CNC) status or an Offer in Compromise (OIC)?
For CNC status, the IRS typically requires proof of income, expenses, and financial hardship. For an OIC, you must submit detailed financial statements, income, assets, and liabilities so the IRS can calculate a reasonable settlement.
How long after the 30-day notice does the IRS typically start deducting from Social Security payments?
If no arrangements are made or the CDP hearing is not requested, the IRS generally instructs the SSA to start withholding within one to two months after the final notice.
Can state tax authorities garnish federal Social Security benefits under any circumstances?
Generally, state tax agencies cannot levy federal Social Security benefits. Federal law protects these benefits under programs like the FPLP.
Tax Help for Those with Social Security Benefits
The IRS does have the authority under federal law to levy up to 15% of your Social Security retirement or disability benefits to collect unpaid taxes, but Supplemental Security Income (SSI) benefits are fully protected and exempt from levy. The IRS must provide notice and offer an opportunity to dispute before levying. Importantly, there are protections and options to prevent or stop levies, such as payment plans, Offers in Compromise, or Currently Not Collectible status. Acting early and communicating with the IRS can help you protect the bulk of your Social Security income. If you’re worried about IRS levies, consult a tax professional who can help you navigate these rules and negotiate solutions that minimize financial harm. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
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