Taxation & Estate Planning

All of it, or just 15% - IRS manual and automated levies on social security benefits

By howardlevy

A reader asks the following regarding IRS levies on social security benefits:

What is the difference between an automated federal levy on social security and a manual tax levy, and why does the IRS choose one over the other?

Here is my response:

1.     Automated Levy (15%).  Pursuant to section 6331(h) of the Internal Revenue Code, the IRS can continuously take, month after month, an automatic 15% of a taxpayer’s social security benefits.   All the IRS has to do is match its records of delinquent taxes to those of the government’s Financial Management Service, which indicate social security entitlement.  After a match is made, a notice is sent to the taxpayer from the IRS that the 15% levy will commence on his or her social security. Once the levy commences, the Financial Management Service sends a notice of confirmation to the taxpayer. 

The automated social security levy is one of the most readily used IRS collection tools.  It is simple, and provides immediate, continuing and quantifiable results.  It also causes the most financial hardship.  In 2007, the IRS received 1.74 million payments from automated levies on social security benefits.  The IRS Taxpayer Advocate estimates that 86% of those levies were in situations were social security was the primary or only source of taxpayer income.   

2.     Manual levy (100%).  The IRS is not limited by IRC 6331(h) to taking 15% of a taxpayer’s social security benefits.  The IRS can issue a manual levy that can continuously take all of the social security benefits under Internal Revenue Code section 6331(a), which permits levy on all wages, salary or other income (which would include social security).  The 15% automatic levy provision is a supplement to the manual levy power. The IRS can chose the manual approach if it deems fit and attempt to collect more than the automated 15%.

The manual levy requires the assignment of an IRS Revenue Officer, while the automatic levy is a paperless transmission.  The manual levy is usually made in extreme circumstances where there is a lack of cooperation.    

3.     Exemptions on a manual levy.  One last, and very important, point:  It is important to understand that although the IRS can manually levy up to 100% of social security benefits, the taxpayer has the right to claim an exemption against the levy.  This exemption - contained in IRC 6334(a)(9) - permits the taxpayer to receive a minimum amount of the social security payment and defeat all or part of the manual levy.

The IRS publishes a table of the amounts that can be claimed as exempt.  A single taxpayer getting a monthly social security benefit can currently claim $779.17 as exempt from a manual levy.  That means the IRS, although it can make a manual levy, will only get amounts over $779.17 if the exemptions can be claimed in response to the levy.    

The IRS has recently announced that they will attempt to be more reasonable in levy releases in hardship cases. If an automated or manual IRS social security levy does not leave sufficient funds to pay living expenses, the IRS should be contacted to demonstrate the hardship and to negotiate a release.  

Full post as published by IRS and the Law on May 09, 2009 (boomark / email).