IRS Trouble: Can Pensions Be Garnished?

Understanding the security of your retirement income is crucial. When you’re dealing with debt, it’s natural to wonder, “can pensions be garnished?”. The answer is not always straightforward as it depends on the type of debt and the specifics of your pension. In this article, we delve into the details of pension garnishment to give you a clearer picture of your financial future.

• What Is the Reason for the IRS to Levy Pensions?
• How Much Can the IRS Garnish From My Pension?
• What Community Tax Can Do to Help

What Is the Reason for the IRS to Levy Pensions?

The IRS may levy pensions to address an outstanding balance of federal taxes. When individuals have unpaid tax debts or are involved in tax fraud, the IRS may take action to collect the amount owed. In such cases, the IRS can levy pensions, including retirement benefits and pension income, to satisfy the tax liability, though they’re not limited to pensions only and can resort to wage levies too. The purpose of levying pensions is to ensure that individuals fulfill their tax obligations and to collect the funds owed to the federal government.

How Much Can the IRS Garnish From My Pension?

The specific amount that the IRS can garnish from your pension depends on various factors, including the type of pension plan and applicable laws. However, under the Consumer Credit Protection Act (CCPA), which governs debt collection practices, there are limitations on the amount that can be garnished from your pension or retirement income.

For most types of debts, including federal tax debts, the CCPA limits the garnishment to either 25% of your disposable income or the amount by which your disposable income exceeds 30 times the federal minimum wage, whichever is less. Disposable income refers to the amount left after legally required deductions such as taxes and social security.

What Community Tax Can Do to Help

At Community Tax, we provide a range of services to help individuals facing tax-related challenges that could end up in a pension being garnished. Here’s how we can assist you: 

• Debt Settlement: We specialize in negotiating with the IRS on your behalf to settle your tax debt. We work to reach an agreement that may allow you to pay a reduced amount to satisfy your outstanding tax liability or to address this through the best debt repayment strategies. 

• Tax Preparation: Our team of tax professionals is dedicated to providing comprehensive and accurate tax preparation services. We stay up-to-date on the latest tax codes and changes, ensuring your tax return is prepared correctly and that you receive every credit and deduction you’re entitled to. 
• Tax Assurance Program (TAP): Staying in compliance with tax laws and regulations is critical but can be overwhelming. That’s where our tax assurance/monitoring services come in. We monitor your tax situation to ensure compliance and handle any issues that arise, giving you peace of mind. 

It’s essential to consult directly with our Community Tax team to discuss your individual circumstances and understand the full range of services we provide. We can offer professional guidance tailored to your needs, assisting you in resolving your tax-related issues. 

Still not entirely clear? Our FAQ section below may be able to help! 

FAQs

Is it possible for a mortgage company to garnish my pension benefits?

Yes, it’s possible for a mortgage company to garnish your pension benefits, but it largely depends on the type of pension you receive and the laws in your state. Federal law protects some pensions, like Social Security, from being garnished for most debts, but private pensions and certain federal retirement benefits might be susceptible to garnishment

How can I protect my retirement account from garnishment?

Seek advice from a reputable debt consultant or credit counselor who can provide guidance on managing your debts and protecting your retirement account. They can assess your financial situation and offer strategies to help you avoid or navigate garnishments.  

Does a debt collector have the authority to garnish my federal benefits?

In general, debt collectors do not have the authority to garnish federal benefits. There are legal protections that protect federal benefits, such as social security, disability or veterans’ benefits, from being garnished by most creditors. However, there are exceptions for certain types of government debts, such as federal taxes, student loans or child support. In these cases, government agencies, such as the IRS, can obtain a court order to garnish federal benefits and collect outstanding debts. 

Are pension funds under any protection?

Pensions and retirement accounts may have certain protections, but these may vary depending on the type of pension or retirement account and applicable laws. Employer-sponsored pension plans are subject to specific regulations, while individual retirement accounts may have protections against creditors or bankruptcy proceedings in some cases. In addition, in certain situations of financial hardship, there may be provisions that allow early access to retirement funds. 

Can my Social Security disability payments be garnished due to credit card debt?

In general, Social Security Disability payments are protected from being garnished for credit card debt. These payments are backed by the Social Security Act, which protects them from being garnished by private creditors. However, there are exceptions, such as debts owed to the government, federal taxes, federal student loans, and child or spousal support obligations. It is important to note that once Social Security disability funds are deposited into a bank account, they can lose their protection against garnishment.