Can You Receive Social Security Benefits If You Owe Back Taxes?
Understand the interplay between government financial obligations and your Social Security benefits, plus strategies for managing federal debts.
Social Security benefits provide a financial safety net for millions of Americans, offering support for retirement, disability, and survivors. However, the federal government has mechanisms in place to recover certain outstanding debts, which can impact the amount of Social Security benefits an individual receives. Understanding how these agencies interact regarding financial obligations is important for anyone receiving or expecting Social Security.
How Federal Tax Debts Affect Benefits
You can generally receive Social Security benefits even if you owe back federal taxes. However, the Internal Revenue Service (IRS) can take action to collect delinquent federal tax debts directly from your Social Security payments. This collection typically occurs through the Federal Payment Levy Program (FPLP), a component of the broader Treasury Offset Program (TOP). The FPLP allows the IRS to automatically seize up to 15% of certain Social Security benefits, such as retirement or adult survivor benefits, to satisfy unpaid federal taxes.
While the FPLP typically limits automatic levies to 15%, the IRS can initiate a manual levy, potentially seizing more, though an exempt amount for living expenses applies. Supplemental Security Income (SSI) and survivor benefits paid to children are generally exempt from automated levies. Before a levy, the IRS sends multiple notices, including a “Notice of Intent to Levy,” providing a 30-day warning and outlining appeal rights.
Other Federal Debts That Can Impact Benefits
Beyond federal tax debts, other types of federal obligations can also lead to a reduction in Social Security benefits through the Treasury Offset Program (TOP). Managed by the U.S. Department of the Treasury, TOP intercepts federal payments, including Social Security benefits, to collect delinquent debts owed to federal or state agencies by matching individuals who owe debt with those receiving federal payments.
For instance, if you have defaulted on federal student loans, the Department of Education can use TOP to withhold up to 15% of your Social Security retirement or disability benefits. This offset continues until the defaulted loan is paid in full or a repayment arrangement is made. Past-due child support payments, enforced by states, can also be collected through federal offset mechanisms, including Social Security benefit reductions. Other non-tax federal debts, such as those owed to other federal agencies or certain unemployment compensation debts, are also subject to offset via TOP.
Actions to Take Regarding Unpaid Taxes
If you owe federal back taxes and are concerned about impacts on your Social Security benefits, communicate proactively with the IRS. The IRS offers several resolution options for taxpayers facing unmanageable tax debt. One common option is an Installment Agreement, allowing monthly payments over an extended period, typically up to 72 months, to pay off your tax liability. For those owing $50,000 or less, a streamlined installment agreement can often be set up quickly without extensive financial disclosure.
Another option for financial hardship is an Offer in Compromise (OIC), allowing you to settle your tax debt for a lower amount. To qualify for an OIC, the IRS assesses your ability to pay based on your income, expenses, and asset equity, and you must have filed all required tax returns. The IRS’s “Fresh Start Program” encompasses these and other provisions, aiming to help taxpayers resolve debts and avoid severe collection actions like levies. If you believe the tax debt is incorrect, you have the right to dispute the IRS’s findings by requesting a reconsideration or filing an appeal with the IRS Office of Appeals.