Can the IRS Garnish Social Security Disability?

The potential for Social Security Disability benefits to be garnished by creditors is a concern for recipients. While most private creditors cannot access these funds, the Internal Revenue Service (IRS) operates under different regulations. This article provides an overview of the IRS’s ability to levy Social Security Disability benefits for unpaid taxes.

General Protection of Social Security Benefits

Social Security benefits, including Social Security Disability Income (SSDI), are protected from most creditors. Federal law, Section 207 of the Social Security Act, exempts these funds from garnishment, levy, or seizure by private entities such as credit card companies or medical debt collectors. This protection aims to ensure individuals relying on these benefits maintain a basic standard of living.

This protection extends even if benefits are directly deposited into a bank account or onto a prepaid card. Banks are required to protect at least two months’ worth of Social Security funds automatically from private creditor garnishment. However, this protection does not apply to debts owed to the federal government.

IRS Authority to Levy Social Security Benefits

The IRS has authority to levy Social Security benefits, including SSDI, for outstanding federal tax debts. This power is outlined in Internal Revenue Code Section 6331. This authority distinguishes the IRS from most other creditors, enabling it to pursue collection actions against federal payments.

While the IRS can levy Social Security benefits, limitations exist on the amount it can seize. Through the Federal Payment Levy Program (FPLP), the IRS can automatically take up to 15% of monthly Social Security retirement or survivor benefits. However, Supplemental Security Income (SSI) payments, children’s survivor benefits, and lump-sum death benefits are fully exempt from any IRS levy.

For Social Security Disability Income (SSDI), the IRS stopped systemically levying benefits through the automated FPLP. This does not mean SSDI is entirely protected; the IRS can still initiate manual levies on SSDI payments. Unlike the fixed 15% for automated levies, manual levies on SSDI can take a larger portion. However, the IRS must leave an exempt amount for reasonable living expenses, based on the taxpayer’s filing status and number of dependents.

IRS Collection Process Leading to Levy

Before the IRS initiates a levy on Social Security benefits, it follows a defined process involving notices and opportunities for the taxpayer to address the debt. Taxpayers first receive notices, such as CP14, informing them of the outstanding tax liability and payment options. Subsequent reminders often follow if the debt remains unpaid.

The IRS generally cannot levy assets, including Social Security benefits, without first issuing a “Final Notice of Intent to Levy.” This notice may be in the form of a CP90, LT11, or Letter 1058. It informs the taxpayer of the IRS’s intention to seize property and provides a statutory 30-day window to respond.

The Final Notice of Intent to Levy also informs the taxpayer of their right to request a Collection Due Process (CDP) hearing. This hearing, which must be requested within 30 days of the notice, allows taxpayers to dispute the tax debt, propose collection alternatives, or raise spousal defenses. A timely request for a CDP hearing will suspend collection actions until the hearing process is concluded. If the 30-day period is missed, a taxpayer may still request an Equivalent Hearing within one year.

Responding to an IRS Levy Notice

Receiving an IRS levy notice, or discovering that benefits have already been levied, requires prompt action. The immediate step involves contacting the IRS to understand the specifics of the levy and explore available resolution options. Communication with the IRS is important for addressing the underlying tax debt.

Several pathways exist to resolve a tax debt and potentially stop or release a levy. One option is to pay the outstanding balance in full if feasible. Alternatively, taxpayers can propose an installment agreement, which allows for monthly payments over an agreed-upon period; establishing such an agreement can often prevent or halt a levy.

Another potential solution is an Offer in Compromise (OIC), which allows certain taxpayers to settle their tax debt for a lower amount than originally owed if they demonstrate an inability to pay the full amount or if doing so would cause significant financial hardship. To qualify for an OIC, taxpayers must be compliant with all filing and payment requirements and provide detailed financial information, such as Form 433-A. If a levy is causing an immediate economic hardship, preventing the taxpayer from meeting basic living expenses, a request can be made to the IRS for a levy release or reduction. This requires demonstrating the hardship through financial documentation, and if approved, the IRS may suspend collection efforts by placing the account in Currently Not Collectible (CNC) status.