Owing back taxes to the Internal Revenue Service can be quite stressful. This situation can become even more overwhelming for individuals who rely on Social Security benefits as their primary or sole source of income. One of the collection tools the IRS uses to recover unpaid tax debts is the levy, and unfortunately, that includes levying Social Security benefits.
If you are a retiree, disabled individual, or survivor receiving Social Security, it is important to understand how and why the IRS may take part of your monthly benefit and what you can do to stop or prevent it.
What Is an IRS Levy?
A levy is a legal seizure of your property or rights to property to satisfy a tax debt. Unlike a lien, which is a claim against your assets, a levy is the actual taking of your property. The IRS can levy bank accounts, wages, retirement accounts, and even Social Security benefits. Once a levy is in place, it continues until the debt is paid or the IRS agrees to release the levy.
How Does the IRS Levy Social Security Benefits?
The IRS uses the Federal Payment Levy Program (FPLP) to automatically seize a portion of Social Security benefits from taxpayers who have delinquent federal tax debts. This program allows the IRS to match its records with the Social Security Administration and issue automated levies.
Under the FPLP, the IRS can levy up to fifteen percent of your monthly Social Security benefit. This applies to retirement and survivor benefits but does not apply to Supplemental Security Income (SSI), survivor benefits paid to a child, lump sum death benefits, or disability payments. However, the IRS can issue a manual levy to reach a taxpayer’s disability benefits.
The Notice Requirement Before a Levy
Before the IRS begins levying Social Security benefits, it must issue several letters to the taxpayer. This includes a CP-14 notice, which is the initial demand for payment to a CP-90 Final Notice of Intent to Levy and Notice of Your Right to a Hearing. The CP 90 notice is particularly important. Once issued, you have thirty days to request a Collection Due Process (CDP) hearing, which the IRS Independent Office of Appeals conducts. If you fail to act during this window, the IRS will send you either notice CP-91 or CP-298, which notifies you that the IRS intends to levy your Social Security benefits. This is your final warning before a levy is put in place.
Can You Stop or Prevent a Levy?
Yes, there are several ways to stop or prevent a Social Security levy:
1. Pay the Tax Debt in Full
While not realistic for everyone, paying the balance due is the fastest way to stop IRS collection activity, including levies.
2. Enter into an Installment Agreement
Setting up a payment plan with the IRS may remove you from enforcement programs like the FPLP. Based on your situation, you may set up an installment agreement that either fully settles your balance or allows for partial payments. Partial payment and full pay agreements with large balances will require you to provide financial information.
3. Submit an Offer in Compromise
If you cannot fully pay your tax debt and meet the eligibility requirements, an Offer in Compromise (OIC) may be a viable solution. This allows you to settle your tax debt for less than you owe. You must provide full financial disclosure to the IRS.
4. Request Currently Not Collectible Status
If you can prove to the IRS that you cannot afford to pay your tax debt due to financial hardship, you may be granted Currently Not Collectible (CNC) status. This temporarily halts all collection activity, including levies on Social Security benefits. To qualify, you must provide financial documentation showing your assets, income, and expenses. The IRS will review your account periodically to determine whether your situation has improved.
5. Appeal the Levy
You can request a hearing when you receive a Final Notice of Intent to Levy and Right to a Hearing. During the hearing, you can dispute the validity of the tax debt or propose an alternative to the issuance of a levy. Requesting a CDP hearing before the levy begins will delay enforcement while your case is under review.
Taxpayers can also utilize the Collection Appeal Program to appeal a levy.
Can the IRS Take More Than 15 Percent?
Yes, although the IRS typically uses the FPLP to seize 15 percent of Social Security benefits automatically, there are situations where the IRS can take more of your monthly payment through a manual levy. The IRS can take all your Social Security benefits minus certain exemptions when using a manual levy. However, in most cases, the exempt amount is far less than what is needed to cover basic living expenses.
Manual levies are less common than those issued under the FPLP and typically involve high-dollar cases or prolonged noncompliance.
What If the Levy Causes Financial Hardship?
If the levy leaves you unable to pay for basic necessities, you can contact the IRS and request a release based on hardship. You must submit IRS Form 433-A or 433-F, which provides a detailed picture of your financial situation. If the IRS agrees, it may release the levy and consider alternative arrangements.
Dealing with a Social Security Levy
Receiving Social Security should provide stability, not uncertainty. But when the IRS levies your benefits, it can make it difficult to cover essential living expenses. The good news is that there are solutions. Understanding your rights and responding quickly to IRS notices can help you avoid or resolve a levy before it causes lasting harm.
If you currently face a Social Security levy or are worried that one may be coming, do not wait. Contact the East Coast Tax Consulting Group at 561-826-9303 to assess your situation and explore options for resolving your tax debt while protecting your income.