Social Security Disability Insurance (SSDI) provides a monthly income if a qualifying medical condition, such as an injury or illness, prevents you from working. Because it is a government program, however, owing back taxes may affect your eligibility and the amount of money you receive from SSDI.
Here is what you should know about Social Security disability payments and back taxes.
What Are Social Security Disability Benefits?
Social Security is an entitlement program that all of us pay into while working. You help fund the program via a payroll deduction, and you can receive benefits from it when you reach retirement age, or you suffer an injury or illness that prevents you from working. Your monthly disability benefit amount depends on a few factors, including how long you worked before filing for disability and how much you have paid into the program.
Can I Get Social Security Disability if I Owe Back Taxes?
You can still qualify for SSDI payments if you owe back taxes, but you might receive less money. While your Social Security income is protected from garnishment by most creditors, that doesn’t apply when you owe money to the federal government. Thanks to a 2002 law, the IRS can seize a portion of your disability payments to help pay off your back taxes.
Can the IRS Garnish Disability Payments if I Owe Back Taxes?
The IRS can garnish your disability payments to satisfy a tax debt, and they will likely do so if you do not make suitable arrangements on your own to pay. That is why we recommend working with an experienced and competent tax professional before it gets to that point. (Yes, we can help you!)
How Will the IRS Notify Me Before Garnishing Payments?
The IRS must notify you by mail at least 30 days before they plan to garnish your SSDI payments. If you’ve received such a notice from the IRS, it isn’t too late to make arrangements to avoid having your disability benefits garnished. Use the 30-day grace period to work with a tax professional on a repayment plan or tax forgiveness program.
What Percentage of My Disability Payment Can the IRS Take?
The IRS may garnish up to 15 percent of your Social Security disability payment each month. That doesn’t mean they’ll always take the full amount. It depends on how much you owe and the amount of your monthly disability benefit. If the IRS notifies you that they plan to garnish 15 percent, you have the option to try to negotiate a lower percentage.
How Can I Protect My Social Security Disability From the IRS?
There are two ways to protect your SSDI benefits from IRS garnishment. The first is the simplest, though it’s not always possible: pay off your tax debt. The second is to find a tax relief program.
Pay Your Tax Debt
If you have the means to pay off your tax debt, it is in your best interest to do it. The IRS is not like the annoying debt collector who calls about your old cell phone bill. You can’t make them go away by sending a cease-and-desist letter or filing a dispute with the credit bureaus. Your tax debt will hang around until it is paid off.
Find Tax Relief
If you can’t pay your back taxes in full, several Fresh Start programs can help you settle with the IRS and avoid having your disability payments garnished. You may qualify for an Offer in Compromise, in which the IRS agrees to accept a lower amount than what you owe. Other possibilities include a monthly Installment Agreement, or a deferral or forbearance based on Hardship Status.
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