A levy is a special way to collect taxes where the government takes what a taxpayer owes by taking money from the income of the taxpayer. The IRS may levy on the assets or income of all taxpayers owing taxes, including Social Security benefits. There are two ways that the IRS may levy upon Social Security benefits: through the automated Federal Payment Levy Program (FPLP) or by a manual (non-FPLP) levy.

The Federal Payment Levy Program

The Federal Payment Levy Program (FPLP) is a simple way for the IRS to collect taxes. All the IRS has to do is match its records of delinquent taxes to the government’s Financial Management Service records, which show who is entitled to receive Social Security benefits. After making a match, the IRS sends several notices telling a taxpayer that the IRS will begin a levy on his/her Social Security benefits. Under the FPLP, the IRS may levy up to 15 percent of a person’s Social Security benefits each month. This includes retirement, survivors, and disability insurance benefits. The IRS is not allowed to levy certain benefits, including children’s benefits, Supplemental Security Income payments (SSI), and lump sum death benefits.

The Non-Federal Payment Levy Program (Manual Levy Program)

The manual levy is a more difficult process for the IRS. This process is usually used only when a taxpayer has been completely uncooperative and/or unresponsive. For a manual levy, an IRS Revenue Officer is assigned to the taxpayer’s account. Under a manual levy, the IRS may take up to 100 percent of the taxpayer’s income or assets each month until the tax debt is satisfied. However, under the manual levy program, the taxpayer may set aside a certain amount of income for reasonable living expenses. The IRS may not levy on that amount. The set-aside amount is currently $779.17 each month for a single taxpayer.

What should I do if I receive a letter or notice from the IRS?

If you receive any sort of letter or notice from the IRS, such as a Notice of Intent to Levy or a Final Notice of Intent to Levy, you should take action immediately. If you do not respond to the notice, it is likely that you will forfeit your Social Security benefits to the IRS. The first thing you should do is to try to figure out if you actually owe the tax.

What can I do if I do not owe the tax?

If you feel that you do not owe the tax, you may do one of two things:

• File for an audit reconsideration, and show evidence that the debt is wrong, or
• File for innocent spouse protection.

The IRS will suspend the levy action while it considers these applications. Both of these actions may take months to be reviewed.

What should I do if I owe the tax but cannot pay it?

If you believe that you owe the tax debt, but you are unable to pay it, you may:

• Enter into an installment agreement with the IRS,
• Request that the IRS consider your account to be currently not collectible, or
• Submit an offer in compromise to the IRS.

Call LSNJ’s Low-Income Tax Clinic

The Low-Income Tax Clinic at Legal Services of New Jersey is available to assist you if you receive a levy notice from the IRS. For any tax-related questions, contact the Low-Income Tax Clinic at 1-888-576-5529. Remember, if you do not respond to the notice, it is likely that you will forfeit your Social Security benefits to the IRS.

This article is from the November 2009 issue of Looking Out for Your Legal Rights^®.