Can Social Security benefits be garnished? In some situations, the answer is a definite no, but in others, it becomes a distinct possibility. Ultimately, it depends on who’s doing the garnishing.
Key Takeaways
- The U.S. Treasury and the Social Security Administration can garnish your Social Security benefits for unpaid debts such as back taxes, child support, or a federal student loan that’s in default.
- If you owe money to the IRS, a court order is not required to garnish your benefits.
- You’ll have to shell out 15% of your Social Security for federal back taxes and as much as 65% for alimony or child support owed.
What Is Wage Garnishment and How Does It Work?
Here’s how garnishing works. A commercial creditor to whom you are in debt takes you into court and wins a judgment against you. Then the creditor asks the judge for an order to garnish your wages, bank account, and any other assets you may have to satisfy that debt. The judge approves the garnishment to square the debt. Are all your assets vulnerable, including Social Security and retirement benefits such as a 401(k) or an individual retirement account (IRA)?
When the Creditor Is a Commercial Entity
When it comes to federal benefit payments—Social Security benefits, Veterans Affairs benefits, railroad retirement benefits, federal student aid, and Office of Personnel Management retirement benefits—the answer is no. A creditor who has issued you a credit card or an auto loan can’t garnish these federal benefits, even if your payment is late. Creditors holding medical bills, along with personal and payday loans, are also prohibited from garnishing these benefits.
401(k)s are generally safe from garnishment by commercial creditors as long as the money stays in the account, thanks to the Employment Retirement Income Security Act of 1974 (ERISA). IRAs are more vulnerable to garnishment.
If you’re not ordered to pay back taxes or child support, then the bank has to review the history of your account(s) a two-month period. If your Social Security or other protected benefits have been directly deposited into your account(s) within that two months—the so-called “look-back period”—the bank must protect the funds.
However, your creditor can still garnish your wages and, depending on the state where you live, other allowable assets you may have, such as a house or car.
When the Creditor Is the Federal Government
Suppose that you owe the federal government back taxes. You’re going to have to hand over 15% of your Social Security benefits. Funds in a 401(K) or an IRA are also vulnerable.
If you owe alimony or child support, the federal government can get involved in that too: You may have to forfeit as much as 65% of your Social Security benefit. And the Internal Revenue Service (IRS) doesn’t need a court order to garnish your benefits.
When your bank receives the garnishment order, it has two business days to conduct a review and identify your accounts. Depending on the order, the bank may freeze those accounts.
You can avoid the garnishment if you make an arrangement with the IRS to pay off back taxes. In that case, it will no longer garnish your Social Security benefits, though it retains the right to do so if you fail to hold up your end of the bargain.
Retirement plans set up under the Employee Retirement Income Security Act (ERISA), such as 401(k)s, are generally protected from judgment creditors.
When the Credit Is a Federal Student Loan
If you become delinquent on a federal student loan, the government can take “the lesser of 15% of the monthly benefit payment, the amount by which the benefit payment exceeds $750 per month, or the outstanding amount of the debt.” This means the government is not entitled to the first $750 of your monthly Social Security and retirement benefits.
For example, if you receive $850 in benefits per month, 15% of that would be $127.50. Because you can’t be given less than $750 per month, the most that can be garnished from your benefits is $100. Note: This rule applies only to federal student loans, not private loans.
Are Pensions and Social Security Protected from Creditors?
Though Social Security benefits are generally exempt from garnishment and levies—as long as direct deposit is used—the Department of the Treasury can collect the debt; it’s one exception. Up to 15% of your monthly Social Security benefit may be levied to pay overdue federal taxes.
How Much of My Social Security Can Be Garnished?
Up to 65% of your Social Security benefit can be garnished for child support or alimony that is 12 or more weeks late. For court-ordered restitution, it’s up to 25% of your monthly benefit. For delinquent student loans and overdue taxes, it’s up to 15%.
Is Retirement Income Protected From Garnishment?
It depends. Some retirement income, such as Social Security and 401(k)s, is protected from certain creditors, while vulnerable to others. Other retirement income, such as an IRA, is more vulnerable.
The Bottom Line
Only the federal government can garnish your Social Security and other federal retirement benefits. If you are in danger of such a scenario, get legal help. The American Bar Association provides links to free and low-cost lawyers who can advise you.