If you don’t pay Uncle Sam the taxes you owe, you can get a small Social Security benefit.
The Federal Payment Levy Program allows the government to automatically collect up to 15% of your benefits. Other benefits are not included, such as Supplemental Security Income. The levy can continue until the debt is paid. Here’s what you need to know, and how to protect your benefits.
How does the Federal Payment Levy Program work?
The Federal Payment Levy Program allows the IRS to garnish up to 15% of your Social Security payments. For example, if you receive $2,200 a month in Social Security benefits, the IRS can take $330 a month until the debt is paid in full.
“Before your Social Security benefits are credited to the FPLP, we will send you a final notice of our intent to charge, with appeal rights, if not already issued,” the IRS said on its website. If the agency does not hear from you, you will receive an additional notice explaining that your Social Security benefits may be collected. You will have 30 days to make arrangements to pay the tax debt before collections begin.
How do you end up with a tax liability?
You could end up with a tax liability if you don’t pay your taxes in full on time.
There are several ways this happens. For example, if you withdraw money from a 401(k) or individual retirement account (IRA) early without setting aside the 10% penalty fee and the income taxes you will owe, you may end up with a tax liability.
People who have made investments that have resulted in significant financial gains may be at risk of garnishment if they make a mistake about how much they owe at the time. Surviving spouses may have inheritance taxes that they need to be aware of. These cases highlight that garnishment is possible for people who have made honest mistakes. It’s important to carefully review your finances each year when you file your taxes to make sure you don’t end up with a tax liability.
How to suspend or withhold Social Security taxes
If your Social Security is garnished, act ASAP as those taxes will continue until your debt is paid.
If the income is so tight that the tax is causing you an immediate economic hardship, you can request a hardship exemption that could result in the immediate withdrawal of your garnished benefits.
“The release of the levy does not mean you are exempt from paying the balance,” according to the IRS. “The IRS will work with you to set up payment plans or take other steps to help you pay off the balance.”
That may include creating a payment plan with the agency to pay off your debt over time or paying your taxes for less than you owe through an offer in compromise, if you qualify. You may also be able to delay collection temporarily until your financial situation improves.
To get started, the IRS says you can scan the QR code on your notice, call the number on your notice or 800-829-1040, or make an appointment at a local IRS service center. Depending on your situation, it may make sense to consult with a tax professional.
