When someone owes back taxes to the Internal Revenue Service, it is common for the IRS to take some types of government payments automatically, such as federal tax refunds, to pay down the debt. Social Security benefits are another type of federal government payment the IRS is allowed to apply toward your debt, but only a certain percentage of your benefit may be taken, and only after the IRS has followed certain procedures. You also have the option of making other arrangements to satisfy your tax bill, rather than sacrifice your Social Security payments.
If you're eligible to receive Social Security benefits, your tax debt does not affect your eligibility, or the amount of benefits the Social Security Administration calculates for you. You may still collect the benefits the agency determines you should receive. Although the IRS may be able to take a portion of your payment, you will notice any IRS payments as a deduction from your benefit check, similar to taxes or other deductions you might have withheld from a paycheck. This does not change the gross amount of benefit you're scheduled to receive. IRS entitlement to your benefits is not automatic when you owe taxes, so you may not immediately notice a deduction for back tax debt when you start receiving benefit payments.
Federal Payment Levy Program
Although your benefit eligibility is not affected by your tax debt, the IRS is allowed to take a percentage of your benefits through the Federal Payment Levy Program. Under this program, the IRS may take up to 15 percent of your Social Security benefits each time you receive them and apply the amount toward your tax debt. However, before the 15 percent garnishment can start, the IRS must make attempts to contact you in writing regarding your debt and give you an opportunity to make other payment arrangements.
In addition to other letters you may receive concerning your tax bill, before the IRS can garnish any portion of your Social Security benefits, it must mail you a final notice of intent to levy your benefits. This letter will state it is a "final notice," and it will have a CP 91 or CP 298 letter number in the corner. If you receive this notice, you have 30 days to submit an appeal. If you do not submit an appeal within 30 days, the IRS may start levying your benefits at any time. An appeal form and instructions on how to submit an appeal are included with your CP 91 or CP 298 notice from the IRS.
Whether you receive a final notice of intent to levy or not, if you are receiving or expect to receive Social Security benefits and know you owe the IRS, it is to your advantage to make other arrangements with the IRS to resolve your debt. Installment agreements that allow you to make monthly payments toward the amount you owe are available, and are typically set up based on the amount you can afford to pay each month. If your monthly expenses are more than your monthly income, including your benefits, you may qualify for a "noncollectible" status with the IRS. This status does not eliminate what you owe, but you aren't required to make any payments toward your debt while in the status. It also prevents the IRS from attaching your benefits, bank accounts or other sources of income to pay your bill. Contact the IRS at 1-800-829-1040 to establish a payment plan or to seek "noncollectible" status.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.