If Social Security is an important component of your retirement plan, it's probably good to know that federal law generally protects your Social Security benefits from creditors. However, did you know that if you fail to repay money to the federal government, it's possible the government will recover the money due by withholding it from your Social Security benefits?
The three most important things to know about money being withheld are:
- Withholding can occur only if the SSA receives a garnishment court order.
- It shouldn't come as a surprise. The SSA will usually send a notification if it's going to withhold any part of your benefits.
- Depending on the type of debt, garnishment can't exceed a specific percentage of your monthly benefit amount.
Here's a rundown of when the Social Security Administration (SSA) is required to withhold money.
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Federal taxes
The IRS has the right to levy a portion of your Social Security benefits if you have unpaid back taxes. However, the most that can be withheld is 15% of each Social Security payment until the tax debt is paid in full. That means if you normally receive a Social Security benefit of $2,000, the most the SSA can withhold is $300.
Federal student loans
A growing number of retirees still carry student loan debt, either from their own education or from loans they took out for their children's education. In the event you fail to make payments and a loan falls into default, the SSA is likely to receive a court order telling it to garnish your Social Security benefits.
Child support and alimony
If you've been ordered by a court to pay child or spousal support, a portion of your Social Security payments can be garnished if you skip out on payments. Unlike with most federal debt, the percentage withheld from your benefits for this can be substantial. That's because the law limits garnishment to either the maximum allowable in your state or the maximum allowed under the Consumer Credit Protection Act, whichever is less.
The federal limits are as follows:
- If you're supporting a spouse and/or child other than the spouse and/or child(ren) you've been ordered to support: The most the SSA can withhold is 50% of your monthly benefits until the debt is satisfied.
- If you're not supporting another spouse or child: The garnishment can reach 60%.
- If support payments are 12 or more weeks late: 55% or 65% can be withheld.
Federal agency overpayments
If a government agency determines that you've been overpaid for certain benefits in the past, your benefits can be garnished to make up for the overpayment. You should receive notification from the SSA early enough to appeal the decision or, if you're facing financial hardship, to lower the repayment amount.
Between Medicare premiums and the rising cost of living, it can be easy to let a bill slip through the cracks. However, as you're paying bills, you want to be extra careful to pay federal and court-ordered debts.
