The IRS regrettably may levy social security benefits under two provisions of the Internal Revenue Code, IRC 6331(h) or 6331(a). IRC 6331(h) is an automated levy that is limited to 15% of the social security payments. Section 6331(a) is a less frequently used manual levy by IRS Revenue Officers and has no limit. In fact, the Revenue Officer may take 100% of the social security payments.
The good news is on October 15, 2015 the IRS announced it will no longer systematically levy SSA Disability insurance benefits through the automated levy program. The bad news is the old age and survivor’s benefits will continue to be levied at 15%.
The very bad news, as the pendulum is swinging to a harsher and more severe enforcement climate by the IRS, is Revenue Officers indicate the new normal for manual social security levies will be 30% effective January 1, 2016.
Confronted with a social security levy or increased social security levy, what options does a taxpayer have? One option would be to suspend benefits until the collection statute is up. This would not only stop the levy, but increase the amount of social security payments when resumed by about eight percent a year. Whether a taxpayer should suspend their social security payments depends upon their pre-tax income, age, health, remaining life span, collection statute expiration and whether the IRS would reduce the tax assessment to judgment.
However there is uncertainty whether the IRS could continue to collect after the collection statute has expired. Paul Tom, attorney at law from Oklahoma states, “Regarding the Social Security levy, IRS can collect AFTER the CSED because SS is a “fixed and determinable” amount. That’s a long way of saying: I don’t have a clue what’s going to happen when benefits resume AFTER the CSED. The IRS computer may just melt down.”
There is a second solution, however. Most taxpayers drawing social security also have other income. A W-4 can be filed with the Social Security Administration. One tactic to frustrate the social security levy would be to have all social security payments go to federal withholding.