Yes, if you owe federal taxes, the IRS can garnish a portion of your disability payments. However, its legal authority to levy these benefits is limited. Under the Federal Payment Levy Program (FPLP), the IRS may withhold up to 15% of your monthly Social Security Disability Insurance (SSDI) benefits to pay back taxes.
If you depend on disability payments to cover your basic living expenses, the idea of the IRS taking a part of your check can be overwhelming. You must act quickly to protect your income, especially if you’ve received an IRS notice of intent to levy.
Victory Tax Lawyers can help you if you’re at the risk of having your disability payments garnished by the IRS. Contact us right away so we can help you stop or reduce the garnishment.
In this article, we’ll explain the different types of Social Security benefits, how the IRS can levy disability payments, and what to expect if you receive a Notice of Intent to Levy.
How the IRS Garnishment Works
IRS garnishment, also known as a wage levy, is the legal process the Internal Revenue Service uses to collect unpaid taxes. Instead of waiting for a court order, the IRS can place liens on a taxpayer’s property or seize a portion of wages, bank accounts, or other primary sources of income.
Unlike private creditors, who must sue and win a court judgment before garnishing wages, the IRS has direct federal authority to enforce tax collection. When a wage levy is issued, employers have a legal obligation to send a portion of the taxpayer’s check directly to the IRS.
However, there are strict rules the IRS must follow before garnishment begins. First, the IRS sends a Notice and Demand for Payment, informing the taxpayer about the total debt owed. If the taxpayer does not respond, the IRS will follow up with multiple notices, including a Final Notice of Intent to Levy and a Notice of Your Right to a Hearing at least 30 days before the garnishment begins.
This final notice is critical because it gives taxpayers the chance to contest the levy, request a Collection Due Process (CDP) hearing, or pursue tax relief options such as an installment agreement or an Offer in Compromise under the IRS Fresh Start Program.
Can the IRS Garnish Disability Payments?
Yes, the IRS can garnish your Social Security disability payments if you owe federal taxes. Disability payments are provided to individuals who cannot work due to physical or mental health conditions. These benefits include Social Security Disability Insurance and Supplemental Security Income (SSI).
SSI is a needs-based benefit that supports elderly, blind, or disabled individuals with little or no source of income. Because SSI is considered a welfare benefit rather than earned income, it is protected from IRS garnishment. In other words, the IRS cannot seize SSI payments to collect back taxes.
Social Security Disability Insurance, part of the Old-Age, Survivors, and Disability Insurance (OASDI) program, provides benefits to individuals who are unable to work due to a medical condition expected to last at least one year or result in death. Under the Federal Payment Levy Program, the IRS can legally garnish up to 15% of SSDI benefits to repay federal tax debt.
What Are the Rules for IRS Garnishment of Disability Payments?
The IRS is permitted to collect only up to 15% of a taxpayer’s monthly SSDI payment to settle unpaid federal taxes. It cannot go beyond this percentage under the Federal Payment Levy Program. The IRS cannot touch your SSI payments, even if you owe back taxes, because it is a needs-based program and is completely protected.
For private or state disability payments, the rules may vary depending on state laws and the type of policy. Some states, such as Minnesota, Kentucky, and Missouri, provide additional protections under state law for both SSI and SSDI.
In those states, private creditors or state tax agencies cannot garnish SSDI benefits. In other states, like Georgia, keeping disability benefits in a separate bank account can help preserve their protection from garnishment.
Finally, before commencing any garnishment, the IRS must send a Final Notice of Intent to Levy and give you 30 days to respond. During this window, you can request a hearing, set up a payment plan, or apply for hardship relief to stop or reduce garnishment.
How Can the IRS Garnish Disability Payments?
The IRS can garnish disability payments based on the type of benefit you are receiving. As discussed earlier, Social Security Disability checks are considered taxable income and can be garnished to collect unpaid federal taxes. In contrast, SSI is a needs-based welfare benefit, not taxable income, and is fully protected from IRS garnishment.
The first step the IRS takes to commence garnishment of disability payments is to send you a written notice. If you receive IRS Letter 1058, LT11, or Notice CP90, it means you have been given your final warning before garnishment. You generally have 30 days from the date on the notice to act. Within that window, you can request a CDP hearing by filing Form 12153, which temporarily halts the levy until your case is resolved.
At the same time, you may be able to pursue alternatives such as an installment agreement, an Offer in Compromise, or Currently Not Collectible (CNC) status. These options can protect your income and provide flexibility until your financial situation improves. Before requesting a CDP hearing, it is strongly recommended to consult an experienced tax attorney, such as Victory Tax Lawyers, who works with the IRS on these matters every day and offers free legal help to victims of IRS garnishment.
How to Stop or Limit Garnishment of Your Disability Benefits
Garnishment of disability benefits can cause significant financial hardship if not addressed quickly. The best way to protect yourself is to respond promptly to any IRS or creditor notices. Because garnishment does not start immediately, you typically have at least 30 days to appeal, negotiate, or make an installment agreement.
In cases where Social Security disability benefits are your only source of income, you may qualify for Currently Not Collectible status, which stops the IRS collection activity because repayment would create undue hardship. Another option is an Offer in Compromise, in which the IRS agrees to settle your tax debt for less than the full amount owed.
Are Social Security Disability Benefits Taxed?
Yes, Social Security Disability benefits are taxed based on factors such as your total household income, the type of benefit you receive, and your filing status. Your Supplemental Security Income is never taxable. However, Social Security Disability Insurance may be subject to federal income tax.
So, how much of your SSDI benefits is subject to taxation? The IRS uses a formula called “Combined Income,” which is your Adjusted Gross Income (AGI) + nontaxable interest + half of your SSDI benefits. This combined income is then compared to IRS thresholds based on your filing status.
For single filers, if your combined income is $25,000 or less, none of your SSDI is taxable. If your combined income is between $25,001 and $34,000, up to 50% of benefits may be taxed. If it exceeds $34,000, up to 85% of benefits may be taxable. For married couples filing jointly, the thresholds are $32,000 (no tax), $32,001–$44,000 (up to 50% taxable), and above $44,000 (up to 85% taxable).
For example, if you receive $12,000 per year in SSDI and have no other income, your combined income would be $6,000 (half of SSDI). In this case, none of your benefits would be taxed, and there would be no risk of IRS garnishment. On the other hand, if you receive $15,000 in SSDI and earn $20,000 from part-time work, your combined income would be $27,500 (half of SSDI + wages).
This second scenario results in up to 50% of your SSDI being taxable because your combined income exceeds the $25,000 threshold. If you owe back taxes, the IRS may then garnish up to 15% of your monthly check. To protect your benefits, respond promptly to IRS notices, set up a payment plan, and seek professional tax help.
Tips to Protect Your Disability Payments
If you are still in doubt about how best to protect your social security disability check from the claws of the IRS, you should take these tips seriously.
1. Keep Disability Benefits in a Separate, Clearly Marked Account
Keep your disability benefits, such as SSI or SSDI, in a separate, clearly labeled bank account apart from other income. This makes it easier to track Social Security deposits and helps defend against garnishment attempts by the IRS or private creditors.
This separation also triggers automatic two-month protection for most non-IRS garnishments. For example, if a bank receives a garnishment order from a private creditor, it must review the past two months of federal direct deposits and leave those funds accessible to you.
However, any benefits outside the two-month lookback are not protected and may be frozen or garnished by creditors. It’s also important to note that this protection does not apply to garnishment orders from the federal government or state child support agencies.
2. Respond Promptly to IRS Notices
When the IRS sends a notice, it is usually to inform the taxpayer about an outstanding balance, an income discrepancy, or other issues requiring attention. Ignoring such notices, especially for SSDI recipients, can result in wage garnishment or direct levies on monthly disability payments.
The first notices you may receive are Notice CP14 or CP501 informing you of your due balance. It is expected that you pay up your tax bill or reach out to the IRS. If you do not act, you may receive more serious notices such as CP503 or CP504, which warn that your federal payments could be seized.
If you still do not respond, the IRS will issue a Final Notice of Intent to Levy (Letter LT11 or CP90). At this stage, you have 30 days to act before your Social Security benefits may be garnished. Responding promptly allows you to explore options such as negotiating a payment plan, requesting Currently Not Collectible status, or pursuing an Offer in Compromise to settle your tax debt and protect your disability payments.
3. Consult a Tax Professional for Advice on Garnishment Protection.
Consulting a qualified tax professional who understands IRS rules and Social Security benefits can help safeguard your disability payments from garnishment. A professional can assess your situation, explain settlement options, negotiate with the IRS on your behalf, and help you avoid costly mistakes.
Working with a tax professional is especially valuable when dealing with the IRS. They can advise you on withholding adjustments, tax deductions, and reporting strategies that comply with federal law while reducing the risk of future garnishment.
Unsure if Your SSDI or SSI Can Be Garnished?
The IRS can legally garnish your SSDI benefits for back taxes, although it has limited access to only about 15% of your Social Security payments. On the other hand, your Supplemental Security Income is fully protected under federal law, as a welfare benefit, and cannot be garnished by the IRS or other creditors.
If you are facing an IRS garnishment, it’s important to act quickly. Once a levy begins, it becomes much harder to stop. By responding within the 30-day notice window and working with an experienced tax attorney, you can protect your Social Security benefits and negotiate the most practical options to resolve your tax debt.
Contact Victory Tax Lawyers immediately to help you respond to your IRS notices and protect your disability benefits from garnishment.
FAQ
If you’re worried about the IRS garnishment of your Social Security benefits, you probably have questions about what it means and how to protect yourself. Below are clear answers to the most common concerns:
Can the IRS Garnish My SSDI or SSI for Back Taxes?
Yes, the IRS can garnish your SSDI benefits to pay back taxes through the Federal Payment Levy Program. However, your SSI benefits are needs-based and fully exempt from levy, garnishment, or offset for unpaid taxes.
How Much Can the IRS Garnish From Disability?
The IRS can garnish up to 15% of your monthly Social Security Disability Insurance benefit and other non-SSI Social Security benefits. For instance, if you receive $2,000 per month in SSDI, the IRS could withhold up to $300. SSI benefits, on the other hand, are fully protected and cannot be garnished.
How Do I Stop the IRS From Garnishing My Social Security?
You can stop or reduce IRS garnishment of your Social Security benefits by:
- Requesting a levy release due to financial hardship
- Setting up an installment payment plan
- Submitting an Offer in Compromise to settle for less
- Applying for the Currently Not Collectible status, which pauses collection until your finances improve
Can Disability Benefits Be Garnished by the IRS for Tax Debt?
Yes, some disability benefits can be garnished by the IRS for unpaid federal taxes. SSDI can be garnished up to 15%, but SSI is fully protected and cannot be taken for tax debt.
What’s the Difference Between SSDI and SSI in Garnishment Protection?
Social Security Disability Insurance is an insurance program funded by the Social Security taxes paid by you and your employer while you worked. It provides monthly payments if you become disabled, and up to 15% can be garnished for unpaid federal taxes or used to pay child support.
SSI (Supplemental Security Income), however, is a needs-based program funded by general tax revenues. It supports people with limited income and resources, and it is fully protected by federal law from IRS garnishment and most creditor claims.
Can the IRS Garnish Social Security Benefits?
Yes, the IRS can garnish your benefits from the Social Security Administration (SSA). However, the IRS must give you prior notice and allow you to partake in a collection due process hearing before a wage levy is issued.
