When wages are withheld from your paycheck to pay off overdue taxes, it can cause serious financial strain on a taxpayer. But, even with a current financial situation that needs to improve, individuals should be able to plan and protect their financial future. The IRS can technically take pension funds to pay off owed tax debts, but there are limitations. Expert-led tax relief services can help you understand these limitations and protect your retirement while working towards a better resolution.
Limitations to How the IRS Can Take Your Pension for Back Taxes
The IRS possesses significant powers to collect unpaid taxes, but when it comes to garnishing retirement pensions, specific rules and limitations apply. Understanding these rules is crucial to alleviate concerns about the security of your pension.
In general, the IRS can garnish a portion of your pension income if you owe back taxes. However, there are legal safeguards and limitations to protect a portion of your retirement income.
- Exemption for Certain Pensions: Certain benefits, such as Supplemental Security Income (SSI) or special Medal of Honor pensions, may be exempt to ensure retirees receive a minimum level of financial security. Consult with a tax professional to assess whether your pension falls under an exemption from IRS garnishment.
- Percentage Limit: The IRS takes a maximum of 15% towards automated federal payments via the Federal Payment Levy Program (FPLP). A standard continuous levy via Form 668-W applies to private company pensions. Under this form, the IRS calculates a small “exempt amount” based on your standard deduction, but seizes 100% of anything else.
- Thresholds for Protection: The IRS offers protection for a portion of your pension income to cover your basic living expenses. If your income falls below the determined threshold, it may be protected from garnishment.
Starting with an initial tax consultation, our team of CPAs, tax attorneys, and consultants at Priority Tax Relief will assess your situation to determine how to best protect your pension.
Laws That Safeguard Your Pension
One piece of legislation that provides vital protection for your pension is the Pension Protection Act. The Pension Protection Act enhances protection for pension benefits. It prohibits the assignment or garnishment of pension benefits, with exceptions for specific types of debt, such as child support.
Get Help from a Tax Professional
While the IRS does have the authority to garnish a portion of your pension for back taxes, there are crucial safeguards in place to protect your retirement security. Understanding these safeguards, including IRS limitations and pension protection laws, is essential to protecting your future retirement funds.
If you’re concerned about IRS garnishment affecting your pension, it’s wise to seek professional assistance from the experts at Priority Tax Relief. Taxpayers who work with Priority Tax Relief benefit from our Tax Help Hotline, which allows us to directly communicate with the IRS on your behalf. This is the first step needed to prevent your retirement from coming into harm’s way when you owe taxes. We can help you navigate the intricacies of tax debt resolution, pension protection, and negotiations with the IRS, ensuring that you can enjoy your retirement with peace of mind and financial security.
