Tax Forgiveness for Disabled American Taxpayers

What if I’m disabled and owe back taxes?

It is technically legal for the IRS to garnish a part of your disability insurance benefits to pay down the sum of money you owe in back taxes. Beginning in 2002, it became legal for the IRS to garnish 15% of Disability benefits of those who are disabled and owe back taxes, as well as Federal Old-Age and Survivor benefits, to pay delinquent tax debt.

This happens when the IRS issues a levy on your disability insurance income. An IRS levy “permits the legal seizure of your property to satisfy a tax debt.” They can issue a levy on any asset — bank accounts, physical assets such as property, and forms of income, including disability insurance due to the aforementioned law. The Social Security Administration, who issues disability insurance benefits, also confirms that it is legal for the IRS to levy and garnish Social Security benefits if the receiver owes delinquent federal taxes.

That implies that while it is illegal for most other creditors to request payment garnished from your disability benefits, the IRS can still take 15% of your disability check to pay down debt owed to the government. If you are on disability and you owe money on back taxes, this is vital information to know. Importantly, disability benefits issued by the Department of Veterans Affairs are not to be considered taxable income and cannot be garnished to pay any debt owed to the IRS because of back taxes.

If you do owe back taxes and get Social Security Disability benefits, the IRS will inform you of their intent to levy 30 days before they begin garnishing 15% from your disability payments. During those 30 days, it’s significant that you make plans for your back taxes to be paid off if you want to receive the full amount of your benefits.

What are disability benefits?

Disability benefits are a type of insurance paid by the Social Security Administration. You usually qualify if you’ve worked for a long enough period of time and have had a share of your wages taken out to pay for this benefit. The most usual type of disability benefit is for disabled workers, usually people who have been injured or ill in such a way that they are unable to work to earn a living.

In 2016, the numbers of persons receiving disability benefits were 10,153,205 from the Social Security Administration. That implies that it’s fairly likely that you or someone you know might rely on these benefits at some point during their careers. So, it’s vital to understand how owing money on these benefits can have an effect on debts that you might owe. Fortunately, in many circumstances, creditors are not permitted to collect your debt if you owe debt and are collecting money through disability insurance.

The Disability Benefits Center reports that while creditors can submit a petition to garnish your income, a fancy word for taking a percentage to repay what you owe debtors, in most cases, can submit an objection to garnishment and cite that they are dependent on disability benefits for income. In fact, it is against the law for creditors to garnish disability benefits. This is good news for those who depend on such benefits to make ends meet. However, it should be noted that just because your disability benefits may not be garnished does not mean that you are not liable to garnishment on any other sources of income you benefit from. And, once you are no longer on disability insurance, you may once again be responsible for the debt you owe.

On average, disabled workers get monthly benefits of $1.234, so be aware that disability insurance benefits might not be sufficient to cover monthly expenses while also paying off existing debts. Unfortunately, the situation only becomes more complex once debts to the Federal Government are factored in.

Who is Eligible for Tax Help for People with Disabilities?

To be eligible for tax help for people with disabilities, elders and those with limited English, the IRS offers help to taxpayers who make $60,000 or less annually. 

The program is sponsored by the IRS referred to as Volunteer Income Tax Assistance (VITA) program, that provides free tax preparation assistance to individuals who meet the following criteria:

• Must be a taxpayer with disabilities, or elder, or limited English proficiency
• Make $60,000 or less annually 
• A member of the household must either be disabled
• Or you must be providing care for a disabled person  

Why would I owe back taxes?

The short answer is you probably didn’t pay estimated taxes or have enough withheld on your W-4, this means you will owe more taxes. 

Most of the time, people owe back taxes simply because they are find it uneasy or they are unwilling to pay what they owe. If you are one of those millions of people, it’s possible that the IRS will come to your door looking for their uncollected taxes. Failing to pay back taxes can lead to serious penalties, fines, and legal action. If you owe back taxes but don’t know how to file or pay, contact a tax resolution specialists for more information.

Back taxes are taxes from a preceding year that you owe that you are yet to pay. In 2009, the IRS estimated that 8.2 million Americans owed $83 billion in back taxes to the Federal Government. That number has most probably grown in the past 10 years as the population of the US has also grown.

Remembering the April 15th tax filing deadline can be difficult for those with busy schedules. If you did not remember to file, and you are able to pay, the IRS will offer you the chance to file a past due return. Be certain that you get started on this immediately to avoid interest and penalties.

Disability Payments That Are Not Taxable

• Military service disability 
• Benefit payments from a public welfare fund 
• Certain workers’ compensation 
• Compensations due to physical injury or physical sickness 
• To learn more, visit the IRS publication 525 (2024) Taxable and Nontaxable Income

Options for Taxpayers With a Disability

If you are disabled and owe back taxes, the sad news is that the IRS can garnish 15% of your monthly payments to pay back the debt you owe them.

The good news is that you will receive an advanced notice before the garnishment begins. During that period, it’s important to reach out to tax representatives who can help build a payment plan with you so that you don’t suffer a reduced disability benefit. If you do find yourself in this kind of situation, your main avenues of recourse include:

• Applying for Non-Collectible Status
• Making an Offer in Compromise
• Signing up for an installment plan through the Fresh Start Initiative

Don’t allow unpaid back taxes hold you back and prevent you from experiencing the best life has to offer. Reach out to a tax resolution specialist today and discover how you can get back on your feet and out of troubles with the IRS.

Disabled and Owing back Taxes!

The situation becomes more of a headache when you include benefits you may be receiving from the government into the mix. One question many people ask is if the IRS can take disability checks for back taxes.

While in most circumstances creditors you owe cannot take your disability benefits as a way to pay down your debt, the same is not true of debt you owe to the federal government. In this article, we’ll look at the rights you have if debtors come to collect your disability benefits, explain what back taxes are, and then elucidate on why you might still owe the IRS money if you’re disabled and owe back taxes.

Why Consider applying for uncollectible status?

Uncollectible status is a status granted by the IRS or other creditors that temporarily suspends debt collection efforts. When an individual is granted uncollectible status, the IRS or creditor agrees to stop collection activities, such as wage garnishments, bank levies, and property seizures. 

To be granted uncollectible status, you must provide documentation that shows you are unable to pay your debts due to financial hardship, including loss of income, high medical bills, or other significant financial burden. You will also need to complete Form 433-F, Collection Information Statement. This form asks for detailed information about your financial situation, including your income, expenses, assets, and liabilities.

What additional options do I have besides uncollectible status?

In addition to uncollectible status, an Offer in Compromise (OIC) is an option for individuals who are unable to pay their tax debt in full to the IRS. An OIC is a settlement agreement between the taxpayer and the IRS that allows the taxpayer to pay less than the full amount owed to satisfy the tax debt. Another option is the Fresh Start Initiative, which is intended to provide relief to taxpayers who are struggling to pay their taxes. Taxpayers who are interested in taking advantage of the Fresh Start Initiative should consult with a tax professional or seek assistance to determine which programs may be available to them and to ensure they are providing all necessary documentation to support their request.

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