Can the IRS Take Your Social Security Disability?

Individuals receiving Social Security disability benefits may be concerned about the Internal Revenue Service (IRS) seizing their payments for unpaid federal taxes. Whether the IRS can take these benefits depends on the specific type of disability benefit received and the procedural steps the agency must follow. Understanding these distinctions helps determine one’s vulnerability to an IRS collection action.

Differentiating Social Security Benefits

The Social Security Administration (SSA) manages two disability programs with distinct rules regarding IRS collection. The first, Social Security Disability Insurance (SSDI), is an earned benefit funded by payroll taxes. Because SSDI is considered an earned benefit, these payments are subject to collection actions by the IRS to satisfy delinquent federal tax debts.

The second program, Supplemental Security Income (SSI), is a needs-based program funded by general tax revenues. Federal law protects SSI payments from levy by federal creditors, including the IRS. Therefore, individuals whose sole disability income is from SSI are not at risk of the IRS taking their payments for back taxes. Some individuals receive concurrent benefits, meaning they get both SSDI and SSI payments; in these cases, only the SSDI portion is exposed to an IRS levy.

The IRS Levy Process on Disability Benefits

To collect unpaid taxes from an SSDI recipient, the IRS uses a manual levy, which is a direct, case-by-case action. This differs from the automated Federal Payment Levy Program (FPLP) used for other federal payments like Social Security retirement benefits.

The amount the IRS can take from SSDI is not a fixed percentage. The law exempts a portion of a taxpayer’s income from levy to cover basic living expenses. This exempt amount is based on the taxpayer’s filing status and number of dependents, so any SSDI payment above this threshold can be seized.

Before a levy can occur, the IRS must provide the taxpayer with a series of notices. The process culminates with a “Final Notice of Intent to Levy and Notice of Your Right to a Hearing.” This document informs the taxpayer of the intended levy and explains their right to request a Collection Due Process hearing within 30 days to appeal the action.

Resolving Tax Debt to Prevent a Levy

One method to prevent a levy is to enter into an Installment Agreement with the IRS. This is a plan to pay the full tax debt in monthly payments over an extended period, often up to 72 months. Taxpayers can request an agreement by filing Form 9465 or by using the Online Payment Agreement tool on the IRS website if their total liability is under $50,000. Once an agreement is approved, the IRS will not initiate a levy.

For taxpayers who cannot pay their tax debt in full, an Offer in Compromise (OIC) may be an option. An OIC allows a qualifying individual to resolve their tax liability for a lower amount than originally owed. To be considered, the taxpayer must show that paying the full amount would cause economic hardship or that the IRS is unlikely to collect the full amount. The process involves submitting Form 656 along with financial disclosures on Form 433-A. The application requires a non-refundable $205 fee, which can be waived for those who meet Low-Income Certification guidelines.

A third option is to be placed in Currently Not Collectible (CNC) status. This is a temporary designation for taxpayers who prove to the IRS they cannot afford to pay their tax debt and basic living expenses. To qualify, a taxpayer must provide financial information on Form 433-F. If granted CNC status, the IRS halts all collection activities, including levies. This status is not permanent, as the IRS periodically reviews the taxpayer’s finances, and the underlying debt continues to accrue interest and penalties.