Tax Liens and Social Security

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The elderly and others who receive Social Security benefits are not immune to owing taxes or, when subject to penalties for nonpayment, from suffering tax liens. Although government benefits are intended to help those in need or to provide senior citizen support, the government still attempts to recover any owed taxes. A tax lien can be a rude surprise to those on Social Security and a fixed income.


When you owe taxes and they're not paid in a timely manner to the Internal Revenue Service (IRS), the IRS can then pursue recovery of these taxes by imposing a tax lien on you, your income source and your property (both assets and cash). The property you own doesn’t have to have an official title, either: The IRS can seize anything of value in your house, including your house. The barometer to determine what should be taken is if it has beneficial value to you (a rather wide-open range).


Benefits from the Social Security Administration (SSA) are considered income by the IRS. This is why they're reported on your income tax filings annually. The power of an IRS tax lien is that it allows the agency to garnish any income, including government benefits to be paid.


The authority of the IRS to go after property and income for overdue taxes is specified in the Taxpayer Relief Act of 1997. Within this legislation, a special authority is included to allow deductions of disability or retirement benefits from the SSA (Title 26, U.S. Code Section 6334(c)).


The IRS is limited in how much it's allowed to take. The agency can deduct up to 15 percent of benefits due from the SSA per month. Exceptions of SSA benefits that can't be taken include children's benefits or benefits already being impacted by the SSA recovering its own overpayments first; the 15 percent cap is per person. So, two people who are married and both receiving Social Security benefits could lose a total of 30 percent of their combined benefits to the lien.


The IRS will not notify the debtor each month when it takes SSA benefits. Instead, an automatic deduction of benefits paid will occur until the lien and related tax levy are fully paid to the satisfaction of the IRS. This authority is specified in the Internal Revenue Code Section?6331(h).


The power of the IRS to deduct SSA benefit is not absolute: Taxpayers can appeal the tax debt. Resolutions can include a compromise payment that settles the entirety of the debt, a slower payment schedule to the IRS, or a hardship exemption due to insolvency. However, the appeal goes to the IRS for review, not to an outside agency. A unique service offered is that of the Taxpayer Advocate Service within the IRS (see Resources). This service can help resolve lien issues with a more favorable result.


About the Author

Since 2009 Tom Lutzenberger has written for various websites, covering topics ranging from finance to automotive history. Lutzenberger works in public finance and policy and consults on a variety of analytical services. His education includes a Bachelor of Arts in English and political science from Saint Mary's College and a Master of Business Administration in finance and marketing from California State University, Sacramento.

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