Someone mentioned to me the other day that she owed back taxes to the IRS, but wasn’t concerned because she was on Social Security--and no one could touch that.
To the contrary… unlike creditors and others to whom you may owe money, the IRS can… and does… take money from your Social Security payments to satisfy payment of back taxes. If you have income in addition to your Social Security, that money is not protected and the IRS can take 100% of it if you also collect Social Security.
According to Title III Section 6(a)(1) of the Fair Labor Standards Act of 1938; if you are not on Social Security and your only income is from working, the first 75% of your wages are protected. Creditors can take up to a maximum of 25% of your weekly earnings after taxes and deductions have been made. That 25% is considered by the IRS to be disposable income. If you are a wage earner who owes back child support or alimony, up to 50% of your salary can be garnished, even if you have re-married and currently support a family; and as much as 60% if you remain single.
As of May, 2001 Social Security benefits became subject to garnishment by other government agencies for the first time in history. While private creditors cannot garnish Social Security benefits, the Federal Government can deduct payments from retired people who have defaulted on VA mortgages, student loans, small business loans, disaster loans and back taxes. In those cases, only the first $750 of Social Security benefits are protected.
Filing bankruptcy will put a temporary halt to IRS levies and garnishments but bankruptcy cannot be filed to eliminate debt to the IRS. Once the bankruptcy reaches its final determination the IRS can re-attach your income--including Social Security benefits.
Beware of the 1099C
Creditors now have another weapon to use against you if they are unable to collect on a debt. The 1099C form is for debts in excess of $600 that the creditor writes off as a loss. The IRS allows creditors to file a 1099C which shows the amount you may have borrowed as income. By doing this, creditors can force you to pay taxes on the money. The worst part of this is that the creditor does not have to send you a copy or give you prior notification of their intent to file a 1099C.
To counteract the 1099C, there is a form called an “Offer in Compromise” which allows you to make an agreement with the IRS to make payments on back taxes owed. Many times, it is cheaper to pay the taxes on the money, than pay the default amount. If you do not own anything of value that can be sold to satisfy any outstanding taxes, skip the Offer in Compromise and file a form 433F with the IRS showing that you have no assets and that Social Security is your only income. You'll find those forms on the IRS website at http://www.irs.gov/.
Beware of the 1099C
Creditors now have another weapon to use against you if they are unable to collect on a debt. The 1099C form is for debts in excess of $600 that the creditor writes off as a loss. The IRS allows creditors to file a 1099C which shows the amount you may have borrowed as income. By doing this, creditors can force you to pay taxes on the money. The worst part of this is that the creditor does not have to send you a copy or give you prior notification of their intent to file a 1099C.
To counteract the 1099C, there is a form called an “Offer in Compromise” which allows you to make an agreement with the IRS to make payments on back taxes owed. Many times, it is cheaper to pay the taxes on the money, than pay the default amount. If you do not own anything of value that can be sold to satisfy any outstanding taxes, skip the Offer in Compromise and file a form 433F with the IRS showing that you have no assets and that Social Security is your only income. You'll find those forms on the IRS website at http://www.irs.gov/.
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