Social Security Deposits and IRS Bank Levies: What Is and Is Not Protected

I hear some version of this from retirees every month: "They can't take my Social Security. It's protected."

From a credit card company with a court judgment, there is a lot of truth in that. From the IRS, much less. Here is how Social Security actually fits into an IRS bank levy, and how retirees on fixed incomes get their money released.

Social Security is not exempt from IRS levy

The Code contains its own list of property exempt from IRS levy in IRC § 6334(a). It includes items like unemployment benefits, workers' compensation, certain service-connected disability payments, and public assistance payments such as Supplemental Security Income under Title XVI of the Social Security Act (§ 6334(a)(4), (7), (10), (11)).

Social Security retirement and disability benefits under Title II are not on that list. And § 6334(c) closes the door on other exemptions: "Notwithstanding any other law of the United States (including section 207 of the Social Security Act), no property or rights to property shall be exempt from levy other than the property specifically made exempt by subsection (a)." Section 207 of the Social Security Act is the anti-assignment provision that protects benefits from most creditors. For the IRS, the Code overrides it.

Two different IRS levies can touch your benefits

A levy on the payment itself

IRC § 6331(h) authorizes a continuous levy on "specified payments," which include federal payments other than those based on income or assets. That levy can attach up to 15 percent of each payment, before it ever reaches your bank. The IRS runs this through its automated Federal Payment Levy Program (IRM 5.19.9).

A levy on your bank account

A bank levy under Form 668-A reaches whatever is in the account when the levy is served, up to the levy amount (Treas. Reg. § 301.6332-3(c)(3)). If your Social Security was deposited the day before, it is part of the balance.

What about the "two months of benefits are protected" rule?

There is a federal rule that protects recently deposited federal benefits in a bank account from garnishment. It is in 31 C.F.R. Part 212. When a bank gets a garnishment order, it must review the account for benefit payments deposited by agencies like the Social Security Administration during a two-month lookback period and leave that protected amount available to the account holder.

Here is the catch for IRS levies. Part 212 defines a "garnishment order" as a writ, order, levy, or similar instruction "issued by a court, a State or State agency, a municipality or municipal corporation, or a State child support enforcement agency" (31 C.F.R. § 212.3). A federal agency's administrative levy is not on that list. Separately, the regulation tells banks to follow their customary procedures when the United States attaches a Notice of Right to Garnish Federal Benefits (31 C.F.R. § 212.4). Add § 6334(c), and the takeaway is simple: do not assume Part 212 will keep the IRS out of your account. Your bank may or may not apply a protected amount; ask, but plan as if it will not.

The protection that does work: economic hardship

The IRM recognizes that bank levies hit benefit recipients especially hard. IRM 5.11.4.6 says that once income is deposited in a bank, there is no exempt amount, and that when an entire paycheck is deposited, the levy should be released in whole or in part to avoid economic hardship.

The IRM's own hardship example is a Social Security case. A taxpayer misses the deadline for a financial statement. A bank levy attaches $600. He calls, says he is unemployed and his only income is Social Security deposited into that account, and provides proof of the monthly benefit and an eviction notice showing $600 due the next day. The IRM's answer: release the levy (IRM 5.11.2.3.1.4).

The legal standard is in IRC § 6343(a)(1)(D) and Treas. Reg. § 301.6343-1(b)(4): release is required if the levy will leave an individual unable to pay reasonable basic living expenses. The regulation tells the IRS to consider your age, employment status and ability to earn, medical expenses, and extraordinary circumstances like a medical catastrophe. For a retiree living on benefits, those factors usually point one way. Details in economic hardship release.

Getting money back that already went to the IRS

If the bank paid before you could act, IRC § 6343(d) allows the IRS to return levied property in certain cases, including where return is in your best interest (as determined by the National Taxpayer Advocate) and the government's. IRM 5.11.2.4.1 gives an example involving a levy on Social Security benefits where the taxpayer's information confirmed that the levy created an economic hardship from the start, and levy proceeds were returned. The request generally must be made in writing within two years of the levy. See getting levied funds returned.

Exempt benefits that land in the bank

Some benefits are exempt at the source under § 6334(a), for example unemployment compensation and SSI. The IRM's statement that deposited income has no exempt amount appears in its discussion of the wage exemption (IRM 5.11.4.6). Whether a particular exempt-type benefit keeps its protection once it is in a bank account is a fact-specific argument. If a levy took exempt-type funds, raise it, and pair it with a hardship request, which does not depend on winning that argument.

A retiree's plan for a frozen account

1. Calendar day 21 with the 21-day hold calculator.
2. Gather proof: your benefit award letter, bank statements showing the deposits, and your monthly bills (rent or mortgage, utilities, medications, insurance).
3. Call the number on the levy and ask for an economic hardship release under § 6343(a)(1)(D). Offer to complete a financial statement by phone.
4. If the employee says no, ask for a manager, then consider the Taxpayer Advocate Service, which takes economic harm cases.
5. Fix the bigger problem. If you cannot pay anything toward the debt, ask about hardship status; the IRM says open levies should be released when a case is closed as hardship (IRM 5.11.2.3.1.4).

Social Security is not off-limits to the IRS. But a retiree who cannot pay rent because of a levy has the law on their side. Ask for the release.

For more on the hardship route, see the firm's page on currently not collectible status. Related: does a bank levy take future deposits.