If an individual has tax debt, the IRS can seize their Social Security benefits to satisfy the debt. Before seizing Social Security checks, the IRS first informs the taxpayer about the back taxes owed through notices. If the notices remain unanswered or no satisfactory resolution is achieved, the IRS proceeds to a levy.
What is Federal Tax Levy?
A tax levy is the government’s seizing of a taxpayer’s property or right to property to fulfill the tax debt. The IRS can levy a taxpayer’s house, car, boat, wages, assets, bank accounts, retirement accounts, dividends, rental income, licenses, accounts receivables, social security benefits, commissions, and cash loan value of life insurance.
IRS Levy Notices on Social Security Benefits
Before placing a levy on Social Security benefits, the IRS sends the levy notice called Final Notice of Intent to Levy and Notice of Your Right to A Hearing at least 30 days before the placement of the levy. If this notice is ignored or if this notice was already issued, the IRS will send an additional notice CP 91 or CP 298, Final Notice Before Levy on Social Security Benefits.
This is the last chance for a taxpayer to avoid a levy. If after the 30-day waiting period from the date of the notice is over and no resolution is achieved, the IRS proceeds to levy the taxpayer’s Social Security benefits.
How Much of Social Security Benefits Can the IRS Take?
The IRS deducts 15% from the taxpayer’s monthly Social Security benefits for unpaid taxes. The agency continues to levy 15% of the benefits till the full tax debt is paid off or a resolution is achieved with the IRS.
Regardless of the amount of tax debt owed, the IRS can go after the Social Security benefits of a taxpayer. For fulfilling non-tax debts, the first $750 of monthly Social Security benefits cannot be levied. However, for satisfying tax debts, the IRS can levy 15% of the benefits, even if the benefit remains less than $750 after the deduction.
How to Get a Levy Removed
After a levy has been placed, it can only be released under certain conditions. These are:
- The taxpayer pays the full tax debt amount
- The 10-year Statute of Limitations for collection of back taxes has expired
- Releasing the levy will help the taxpayer pay the tax debt
- The taxpayer has entered an Installment Agreement, which has the condition that the levy be released
- The levy creates a financial hardship where the taxpayer is unable to meet basic living expenses
- Releasing the levy will not impact IRS’ collection efforts
Since the IRS places a levy to ensure payment of tax debt, if the taxpayer makes arrangements in which the IRS is guaranteed payment of tax debt, they may remove a levy. However, a levy may be reissued if the taxpayer is unable to resolve the issue.
Back Taxes Resolution Options
In case of a levy on Social Security benefits, contacting the Social Security Administration will not help resolve the tax issue. Instead, taxpayers may apply for the appropriate IRS payment plan to resolve the issue. There are a variety of resolution options offered by the IRS based on the tax debt amount and the paying capacity of the taxpayer, such as –
Installment Agreements (IA) – If a taxpayer’s financial situation does not allow full payment in lump sum, they may pay their tax debt in monthly installments using an Installment Agreement.
Offer in Compromise (OIC) – Taxpayers that do not have the ability to pay their full tax debt in lump sum or in installments can get a reduction in tax debt under Offer in Compromise where they pay a reduced amount to satisfy their tax debt. This offer is only available to those whose financial condition does not allow full payment of tax debt.
Currently Not Collectible (CNC) – Even taxpayers who have no ability to pay their tax debt can avoid IRS collection actions by achieving the status of Currently Not Collectible (CNC). for their tax debt case.
To avoid the IRS seizing Social Security benefits, taxpayers may respond to IRS notices and explore the various IRS payment options. Since the tax debt amount keeps increasing due to IRS penalties and interest on unpaid taxes, taxpayers should make early efforts to resolve their tax debt and avoid paying more.