Social Security Disability Insurance (SSDI) serves as a crucial financial lifeline for millions of Americans unable to work due to disability.
However, concerns often arise regarding the Internal Revenue Service’s (IRS) authority to garnish these benefits, especially when individuals owe back taxes.
Understanding the circumstances under which the IRS can levy SSDI payments is essential for beneficiaries to navigate their financial obligations effectively.
IRS Authority to Garnish Social Security Benefits
The IRS possesses the legal authority to garnish certain federal payments, including Social Security benefits, to satisfy outstanding tax debts.
This process is primarily executed through the Federal Payment Levy Program (FPLP), which allows the IRS to levy up to 15% of an individual’s monthly Social Security benefits.
It’s important to note that while Old-Age and Survivors benefits are subject to this levy, as of October 5, 2015, the IRS no longer systemically levies Social Security Disability Insurance (SSDI) benefits through the FPLP.
Exceptions and Limitations
While the IRS has broad authority to collect unpaid taxes, certain Social Security benefits are protected from garnishment.
Supplemental Security Income (SSI), designed to assist low-income individuals who are elderly, blind, or disabled, is exempt from IRS levies.
Additionally, benefits paid to children and lump-sum death benefits are not subject to garnishment under the FPLP.
Process of Garnishment
Before initiating a levy on Social Security benefits, the IRS follows a structured process:
- Notice and Demand for Payment: The IRS sends a notice detailing the owed taxes and demands payment.
- Final Notice of Intent to Levy: If the debt remains unpaid, a final notice is issued at least 30 days before the levy, informing the taxpayer of the impending action and their right to a hearing.
- Levy Execution: Absent any resolution or appeal, the IRS proceeds to garnish the applicable portion of Social Security benefits.
Impact on Beneficiaries
The garnishment of Social Security benefits can significantly affect beneficiaries, particularly those relying heavily on these payments for daily living expenses.
For instance, if an individual receives $1,500 monthly in Social Security benefits, a 15% levy would result in $225 being withheld, reducing their monthly benefit to $1,275. This reduction can strain finances, especially for those with limited additional income.
Options to Prevent or Stop Garnishment
Beneficiaries facing potential garnishment have several avenues to address their tax liabilities:
- Installment Agreements: Setting up a payment plan with the IRS can prevent or halt garnishment. Regular, manageable payments demonstrate a commitment to resolving the debt.
- Offer in Compromise (OIC): This program allows taxpayers to settle their tax debt for less than the full amount owed, based on their ability to pay, income, expenses, and asset equity.
- Currently Not Collectible (CNC) Status: If paying the tax debt would cause significant financial hardship, taxpayers can request CNC status, temporarily suspending collection efforts, including garnishment.
- Collection Due Process (CDP) Hearing: Requesting a CDP hearing within 30 days of the final notice allows taxpayers to dispute the levy or propose alternative payment arrangements.
Preventive Measures
To avoid garnishment of Social Security benefits:
- Timely Tax Filing and Payment: Ensuring taxes are filed and paid on time prevents the accumulation of debt subject to collection actions.
- Proactive Communication: Engaging with the IRS upon receiving notices can lead to alternative resolutions and prevent enforced collection actions.
- Financial Planning: Consulting with tax professionals or financial advisors can help manage obligations and develop strategies to address potential tax debts.
While the IRS holds the authority to garnish certain Social Security benefits to satisfy tax debts, understanding the specific regulations and available remedies is crucial for beneficiaries.
Proactive engagement with the IRS and exploring available relief options can mitigate the impact of garnishment and promote financial stability.
FAQs
Can the IRS garnish my Social Security Disability Insurance (SSDI) benefits?
As of October 5, 2015, the IRS does not systemically levy SSDI benefits through the Federal Payment Levy Program (FPLP). However, manual levies may still apply under certain circumstances.
Are Supplemental Security Income (SSI) benefits subject to IRS garnishment?
No, SSI benefits are exempt from IRS levies and cannot be garnished to satisfy tax debts.
What steps can I take to prevent the IRS from garnishing my Social Security benefits?
Options include setting up an installment agreement, applying for an Offer in Compromise, requesting Currently Not Collectible status, or seeking a Collection Due Process hearing.