Let’s be honest: taxes are complicated. And when you add benefits you may be receiving from the government into the mix, the situation only becomes more of a headache. One question many people ask is, can the IRS take disability checks for back taxes?

While in most cases creditors you are in debt to cannot take your disability benefits as a way to pay down your debt, the same is not true of debt you owe to the federal government. In this article, we’ll cover what rights you have if debtors come to collect your disability benefits, explain what back taxes are, and then explain why you might still owe the IRS money if you’re disabled and owe back taxes.

If you or a loved one owes back taxes and receives benefits through the Social Security Administration, or you’re wondering, “Can the IRS take disability money?” it’s a good idea to read through this guide. Or, if you know exactly what you’re looking for, click on one of the links below to go straight to the answer to your question.

What are disability benefits?

Disability benefits are a form of insurance paid by the Social Security Administration. You usually qualify if you’ve worked for a long enough period of time and have had a portion of your wages taken out to pay for this benefit. The most common form of disability benefit is for disabled workers, usually people who have been injured or ill in such a way that they can no longer work to earn a living.

In 2016, there were 10,153,205 people receiving disability benefits from the Social Security Administration. That means that it’s fairly likely that you or someone you know might rely on these benefits at some point during their careers. So, it’s important to understand how owing money on these benefits can affect debts that you might owe. Fortunately, in many cases, creditors are not permitted to collect your debt if you owe debt and are collecting money through disability insurance.

The Disability Benefits Center reports that while creditors can submit a petition to garnish your income — a fancy word for taking a percentage to repay what you owe — debtors, in most cases, can submit an objection to garnishment and cite that they are reliant on disability benefits for income. In fact, it is illegal for creditors to garnish disability benefits. This is good news for those who rely on such benefits to make ends meet. However, it should be noted that just because your disability benefits may not be garnished does not mean that you are not subject to garnishment on any other sources of income you benefit from. And, once you are no longer on disability insurance, you may once again be liable for the debt you owe.

On average, disabled workers receive $1,234 in monthly benefits, so be aware that disability insurance benefits might not be enough to cover monthly expenses while also paying off existing debts. Unfortunately, the situation only becomes more complicated once debts to the Federal Government are factored in. Next, let’s understand why you might owe money to the government.

Why would I owe back taxes?

Back taxes are taxes from a previous year that you owe that you have not yet paid. In 2009, the IRS estimated that 8.2 million Americans owed $83 billion in back taxes to the Federal Government. That number has likely grown in the past 10 years as the population of the US has also grown.

Most of the time, people owe back taxes simply because they are unable or unwilling to pay what they owe. If you are one of those millions of people, it’s possible that the IRS will come to your door looking for their uncollected taxes. Failing to pay back taxes can result in serious penalties, fines, and legal action. If you owe back taxes but don’t know how to file or pay, contact our tax resolution services specialists for more information.

Remembering the April 15th tax filing deadline can be tricky for those with busy schedules. If you did forget to file, and you are able to pay, the IRS will allow you to file a past due return. Be sure that you get started on this immediately to avoid interest and penalties.

What if I’m disabled and owe back taxes?

It is technically legal for the IRS to garnish a portion of your disability insurance benefits to pay down the amount you owe in back taxes. Starting in 2002, it became legal for the IRS to garnish 15% of Disability benefits of those who are disabled and owe back taxes, as well as Federal Old-Age and Survivor benefits, to pay delinquent tax debt.

This occurs when the IRS issues a levy on your disability insurance income. An IRS levy “permits the legal seizure of your property to satisfy a tax debt.” They can issue a levy on any asset — bank accounts, physical assets like property, and forms of income, including disability insurance due to the aforementioned law. The Social Security Administration, who issues disability insurance benefits, also confirms that it is legal for the IRS to levy and garnish Social Security benefits if the recipient owes delinquent federal taxes.

That means that while it is illegal for most other creditors to demand payment garnished from your disability benefits, the IRS can still take 15% of your disability check to pay down debt owed to the government. If you are on disability or plan to be soon, and you owe money on back taxes, this is valuable information to know. Importantly, disability benefits issued by the Department of Veterans Affairs are not considered taxable income, and cannot be garnished to pay any debt owed to the IRS because of back taxes.

If you do owe back taxes and receive Social Security Disability benefits, the IRS will notify you of their intent to levy 30 days before they begin garnishing 15% from your disability payments. During those 30 days, it’s important that you make arrangements for your back taxes to be paid off if you want to receive the full amount of your benefits. If you find yourself in this situation and are struggling to find a way to pay off your tax debt, Community Tax can help.

Community Tax Resolution Services

Depending on your situation, you may have options.  Community Tax offers a number of services for those who find themselves in over their heads with taxes — from preparing and filing to audits and back taxes, we have the experience and know-how to get you back on your feet. Three avenues for those who owe back taxes but are unable to pay are:

  • Non Collectible Status: If you can prove to the IRS that the levy they apply to your income will put you in a position of severe economic hardship (not just inconvenience), they may temporarily deem your debt non-collectible. This can be difficult to prove, but a Community Tax representative can help you determine if your finances will allow you to attain this status. You will likely need to fill out Form 433-A, a collections information statement, when applying. Bear in mind that this is not an elimination of your debt, and once you’ve regained more stable financial footing, the IRS will resume its levy. It’s also important to note that while you are not required to pay down your debt while deemed uncollectible, your balance may grow due to accumulating interest.
  • Offer In Compromise: An offer in compromise is essentially a deal with the IRS to pay a portion of your debt instead of the full amount. In order to qualify for this option, you must demonstrate that paying the full amount of your debt would subject you to undue financial hardship. You must show that there is doubt whether the IRS will ever be able to collect the amount you owe them, or you must show that there is doubt about the amount you owe in the first place — that is, that the IRS made a mistake in its bill. Our professionals can walk you through this process so that your application looks as good as it can. If you are relying on disability benefits, it’s important to see if you qualify as soon as possible so that you can pay off a portion of your debt before the 15% levy on your benefits sets in.
  • Fresh Start Initiative: Due to rule changes through the Fresh Start Initiative, more people now qualify for an Offer in Compromise. Our tax professionals can help walk you through the options presented by this initiative, which include Offer in Compromise as well as installment agreements. The latter option is a way for you to pay off your IRS debt month-to-month rather than all at once. In order to qualify for this, you can’t earn over $200,000 a year for joint filers, or $100,000 if you’re single, and you can’t owe more than $50,000 to the IRS by the end of the tax year. Our tax experts can walk you through the various rules and regulations to see if applying for one of the programs in the Fresh Start Initiative would be an effective way to lighten your back tax burden before you start receiving disability benefits.

Takeaways

If you are disabled and owe back taxes,  the bad news is that the IRS can garnish 15% of your monthly payments to pay back the debt you owe them.

The good news is that you will receive an advanced warning before the garnishment begins. During that time, it’s crucial to reach out to one of our tax representatives who can help develop a payment strategy with you so that you don’t suffer a reduced disability benefit. If you do find yourself in this situation, your main avenues of recourse include:

  • Applying for Non-Collectible Status
  • Making an Offer in Compromise
  • Signing up for an installment plan through the Fresh Start Initiative

Don’t let unpaid back taxes hold you back and keep you from experiencing the best life has to offer. Reach out to a Community Tax resolution specialist today to find out how you can get back on your feet and out of the red.