Social Security checks are often an important part of a retirement budget — and losing some of that money can come as a surprise.
But it is possible. For example, the government can charge up to 15% of each paycheck if someone has overdue federal taxes. The IRS will take money from your Social Security benefits before they reach your account. Paying your taxes can solve this issue, but if that’s not an option, you still have options before the 15% tax kicks in.
What is the 15% Social Security tax?
The 15% Levy is an additional deduction from your Social Security benefits in addition to regular income tax and Medicare deductions. It applies to people who owe federal tax. Social Security is required to pay benefits if the court sends them a garnishment order. The Treasury Department and the IRS determine the taxes that must be imposed by Social Security.
This tax can have significant financial consequences for retirees. A monthly Social Security benefit of $2,083 would lose $312 a month in payments. That could force some retirees to go back to work or take a scramble to make ends meet and pay off their tax bill sooner.
What Social Security payments can and cannot be affected
Not every type of Social Security payment qualifies for levies. The Social Security Handbook says that Supplemental Security Income, for example, cannot be taxed or garnished. Some types of Social Security, including retirement benefits and Social Security Disability Insurance (SSDI), are eligible for levies and garnishments.
Only the government can levy taxes through the Treasury and the IRS. Private creditors are generally not allowed to interfere with your Social Security benefits or receive any amount from your Social Security assessment.
What to do if you receive a tax notice or your check is reduced
The Levites don’t come out of nowhere. There’s often a trail of mail and messages that lead to a charge, so it’s a good idea to act on the tax notice before your Social Security benefits are cut. You should start by contacting the IRS and verifying the credit to make sure it is not a scam. During that call, you should ask about appeal rights and discuss payment options.
The three payment options are a payment plan, an offer in compromise or a hardship situation. Payment plans can make sense for people who can’t pay the entire amount immediately but can navigate the monthly payments over a set period of time.
An offer of compromise involves paying some of the amount due and that being counted as the full amount. It is only for people who can show financial distress. The hardship situation is for people who cannot keep up with basic living expenses when their benefits are charged, then, debt collection is suspended until the person’s financial situation improves.
Throughout this process, the IRS will not demand payment in crypto, gift cards or other similar methods through aggressive calls. That’s the way scams sometimes take it. However, you should contact the IRS about Social Security taxes. A Social Security representative will not be able to help you with tax debt collections.
