Questions and Answers for Senior Citizens and Legally Disabled Persons Owing Tax Debt

Can Retirement or Social Security Income Be Garnished for Past Due IRS Income Taxes?

The IRS can garnish (offset) 15 percent of federal benefits like social security for past due income taxes. It is less common for the IRS to garnish pensions and other retirement income.

Garnishment of social security for federal tax debt will not happen wihtout notice. If you owe federal taxes, the IRS will send you a notice before the offset occurs.

Can the IRS Garnish or Levy a Bank Account for Past Due Income Taxes?

The IRS can levy bank accounts for unpaid tax debt. This practice, however, is less common than an offset of federal benefits. If your bank account is levied by the IRS for unpaid tax debt, do not give up hope. You can contact the IRS (see below) and ask to be put on Currently Not Collectible Status. If the IRS agrees that you qualify this status, it is very likely they will release your levied funds.

How to Obtain Currently Not Collectible Status

Lower income persons can often be placed on currently not collectible status (CNC) with the IRS. Once an account is placed in CNC status, the IRS will cease collection action, which includes any levy or garnishment actions that are currently taking place. When a taxpayer is placed in CNC status, this status typically lasts for a year. If the taxpayer's financial situation does not change or improve, CNC status will continue.

Persons with especially lower income can often obtain CNC status by simply phoning the IRS. You will not need to file detailed financial paper work.

For more information on Currently Not Collectible status and how you can be placed in this status, visit the IRS Taxpayer Advocate Service website at: https://www.taxpayeradvocate.irs.gov/get-help/paying-taxes/currently-not-collectible/

IRS Taxpayer Advocate Service

There are websites that offer additional general information by searching the internet for “IRS uncollectible status.” If you have difficulty you can also contact the IRS Taxpayer Advocate Service for help. The Taxpayer Advocate Service is an independent organization within the IRS. The Taxpayer Advocate Service (TAS) is available to individuals for free to ensure that every taxpayer is treated fairly and understands their rights. The IRS Arizona Taxpayer Advocate’s phone number is 602-636-9500. This is their website: https://www.irs.gov/advocate

What Can be Done About Taxes Owed to a State Revenue Department?

State tax collectors cannot garnish federal benefits. States also cannot garnish ERISA protected pensions or other forms of retirement protected by state law. State tax collectors do not often communicate the legal protections on retirement incomes. Perhaps some are ignorant about the law protecting the incomes of retired and legally disabled persons. Others may know the legal protections of retirement income and not consider what frequent debt collection efforts may do to the taxpayer with very limited income.

If a state tax collector calls you about an unpaid state tax debt, and you only receive legally protected income, you can advise the tax collectors of this fact. You can communicate you can't afford to pay the alleged tax debt, and your income is not vulnerable to the same.

Legal protections of a bank account where federal benefits are deposited are also protected from state tax collectors.The protection created by deposit of a federal benefit is equal to two times the amount of the monthly benefit - e.g. a monthly deposit of 1000 dollars of Social Security benefits equals account protection of a balance equal to or below 2000 dollars. This protection only applies to the bank account where the benefit is deposited. If you have three bank accounts at a bank, and your Social Security is deposited in account A, only this account is protected. Accounts B and C are not subject to the same protection. Funds from other sources (like pensions, wages, unemployment benefits) are also protected if they are deposited into the same account and do not bring the balance above the protected amount.

Some credit unions and a few banks are not fully informed about the federal laws protecting a bank account where federal benefits are deposited. If you have a bank account where federal benefits are deposited, and your funds have been levied out of the specific account where your federal benefits are deposited and your balance was below two times the amount of your federal benefits, your bank or credit union has made a mistake. Contact HELPS immediately so we can help.

What Can State Revenue Agency Do?

A state can take your state tax refund to offset previous tax debts. It can also intercept a federal tax refund to offset unpaid state tax debts. A few states can suspend your drivers license for unpaid tax debt, although these states usually have high ceilings on the amount owed before a license is suspended. For example, California will only suspend a driver's license if a taxpayer owes over 100,000 dollars in tax debt. Some states will also suspend professional licenses if enough state tax debt is owed.

What is a Tax Lien?

Receiving a notice of a "tax lien" can be frightening. A tax lien from the IRS or state taxing agency is a “lien” on a taxpayer’s property. Language in the written lien notice sometimes causes people to worry that they might lose their home, car and other possessions. Tax collectors are not in the business of selling peoples homes. This practice is exceptionally uncommon. Many people have little or no equity in a home for a lien to attach anyway. The taxing agency files the lien and hopes the tax gets paid if and when the home is sold. Tax collectors also do not go after personal possessions, especially from taxpayers with lower incomes.

I Received a 1099c! What do I do?

A 1099c is a form a creditor submits to the IRS, copied to the taxpayer, that states a debt has not been paid. The IRS then takes the position in certain instances that since the debt was not paid it is now income upon which taxes need to be paid.

Federal tax law provides that to the extent a person is “insolvent” (meaning the amount of debt they owe is higher than the total value of their assets) there is no tax liability. You can learn more about 1099c income and how to deal with it here:https://helpsishere.org/1099c.html

Tax Relief Agencies

Perhaps you've seen advertisements for tax relief on television or social media. These agencies promise enticing solutions. While there are many honest, ethical tax attorneys, CPAs and accoutants in the United States, it's wise to view tax relief agencies with a lot of scrutiny.

The United State Federal Trade Commission, FTC, is an independent government agency whose primary function is consumer protection. This is a quote from the first paragraph on their website describing tax relief companies:

“Tax relief companies use the radio, television and the internet to advertise help for taxpayers in distress. If you pay them an upfront fee, which can be thousands of dollars, these companies claim they can reduce or even eliminate your tax debts and stop back-tax collection by applying for legitimate IRS hardship programs. The truth is that most taxpayers don’t qualify for the programs these fraudsters hawk, their companies don’t settle the tax debt, and in many cases don’t even send the necessary paperwork to the IRS requesting participation in the programs that were mentioned. Adding insult to injury, some of these companies don’t provide refunds, and leave people even further in debt.” https://www.consumer.ftc.gov/articles/0137-tax-relief-companies

What About an Offer in Compromise?

An offer in compromise is where the taxpayer pays the IRS a discounted amount in settlement of past due taxes where a person cannot pay past taxes in an installment agreement with the IRS. There are better solutions for lower income seniors who normally do not have access to funds to offer to settle back taxes. Some CPA’s and local tax attorneys are able to answer questions and help you determine if this would be a practical solution. Here is the IRS website that describes offers in compromise: https://www.irs.gov/pub/irs-pdf/f656b.pdf

Can I Eliminate Taxes Through Bankruptcy?

Taxes often can be eliminated through bankruptcy. The general rule is that the tax must have been filed at least two years ago, be for a tax over three years old in order to be eliminated through bankruptcy. Seniors can contact an experienced bankruptcy attorney for more information.

Conclusion

Certainly seniors want to pay their taxes if they are able. However, our society wants seniors to have the food and medicines they need. If there is a choice between basics and paying taxes, laws and procedures are in place protecting lower income and poor seniors from tax collection. Their income is protected and available for their needs.

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