Taxes, Social Security Disability and The IRS

After hard work and preparation, the Administrative Law Judge decides the case in claimant's favor. After a receipt of the award you contact claimant to tell him the good news.  During the discussion the claimant's wife mentioned off hand, “You know, I have a question. My husband hasn't paid taxes in several years and owes the IRS $30,000.00 in back taxes. Will this effect what we will receive?”

The question of the IRS collecting back taxes against a social security award is not an uncommon situation. The answer to that question depends on the present status of the taxes and the IRS collection efforts. First, if the IRS has established the amount of taxes that is owed, it does have a right to collect against social security benefits. Many times the client says they owe taxes but that has not been established. It is just their feeling on the subject. The actual situation needs to be decided.

If money is owing for back taxes, a compromise and settlement may be something to consider.  If the IRS accept such an agreement, the IRS will abide by that agreement. 

A discussion with the IRS disclosing your dire financial condition is many times helpful in saving money from levy, but you need to be proactive. 

If the IRS has established you owe taxes, and there is no settlement agreement it can proceed in by using the Automated Federal Payment Levy Program under which the IRS can take automatically 15% of what is due you each month until paid in full; or worse, it could use the Manual levy, and take all your back payments without limitation (except for subsistence expenses).

Before the IRS can levy under either program, it must give you notice. If you are subject to a levy you will receive a notice from the IRS – if you do not contact the IRS or make payment within 30 days of the date of the notice, the IRS is allowed to levy on your income, i.e. social security disability money.

The IRS may hold off taking social security disability payments if it determines that it would cause an economic hardship or low income. In either case, it can temporarily hold off trying to collect on the debt. This is only a temporary situation and it has ten years (from date is assesses tax to collect), and it can add penalties and interest.

All of this is explained to the claimant and what happens next is that thee claimant talks to friends or 'Googles' the issue and calls you back saying, “Social Security is protected from garnishment. They can't touch my money!!!”

The claimant has found 42 U.S.C. 407, sec. 207 which provides:

“(a) The right of any person to any future payment under this title shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this title shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.

(b) No other provision of law, enacted before, on, or after the date of the enactment of this section, may be construed to limit, supersede, or otherwise modify the provisions of this section except to the extent that it does so by express reference to this section.

(c) Nothing in this section shall be construed to prohibit withholding taxes from any   benefit under this title, if such withholding is done pursuant to a request made in accordance with section 3402(p)(1) of the Internal Revenue Code of 1986 by the person entitled to such benefit or such person’s representative payee.”

Subsection (b) by reference allows seizure by the federal government and/or IRS. There are five sections of the law that allow seizure, important to this discussion are the following:


1. 26 U.S.C § 6334(c) of the Internal Revenue Code (26 U.S.C. 6334 (c)) allows benefits to be levied to collect unpaid Federal taxes ( 26 USC § 6331 provides for Levy and 26 USC § 6334 does not provide an exemption from Levy);

2. 26 U.S.C. § 3402(p) of the Internal Revenue Code allows beneficiaries to elect to have a percentage of their benefits withheld and paid to the Internal Revenue Service to satisfy their Federal income tax liability for the current year; and

3. The Tax Payer Relief Act of 1997 (Public Law 105-34) authorizes the Internal Revenue Service to collect overdue federal tax debts of beneficiaries by levying up to 15 percent of each monthly payment until the debt is paid.

(Notwithstanding the foregoing,Supplemental Security Income payments cannot be levied or garnished).

The bottom line is that if you owe back taxes to the IRS, you need to take some action and deal with the issue if you want to protect at least a portion of your back payments and deal with future payments.

If you are in this situation, contacting a tax expert may be worth the cost.

Disclaimer: Blogs posted herein are intended neither as legal advice, nor do they create nor attempt to create an attorney-client relationship. The person viewing my blogs is admonished that an attorney-client relationship may only be created with the express consent to the parties to it.