3 Ways Social Security Benefits Can Be Garnished

For tens of millions of Americans, Social Security is an indispensable financial lifeline. A majority of current retirees relies on the program for at least half of their monthly income, and both surveys and saving habits suggest that's unlikely to change as baby boomers move out of the workforce and into retirement.

But this guaranteed source of income (assuming you've earned enough lifetime work credits to qualify for retirement benefits) isn't untouchable. Should you fall behind or default on certain federal loans or civil judgments, it's very possible that a portion of your benefits could be garnished (i.e., seized) by the federal government.

Will you have your Social Security benefits garnished?

If there is a silver lining here, private creditors like banks have no stake on your Social Security benefits, nor can anyone, government or nongovernment, touch your Supplemental Security Income. Nevertheless, Uncle Sam could garnish a portion of your Social Security benefits if you fail to repay certain types of debt.

1. Federal income taxes

Should you be in arrears on your federal income taxes, the Internal Revenue Service could come calling and wield quite a lot of power. The IRS, according to the Federal Payment Levy Program, has the authority to subject your benefits to a 15% levy to go toward delinquent federal income taxes. While some types of debt require that you're left with a minimum monthly benefit after being garnished, the IRS can deduct its 15% regardless of how much money you're left with. That means even low-income individuals living below the poverty line can be subject to an IRS levy for back taxes.

2. Federal student loans

Regardless of when, or how long, you went to college, if you fail to pay off your student loans, the federal government can seek up to a 15% levy of your monthly Social Security benefits until the loan is paid off. Unlike with federal income taxes being in arrears, garnishments involving defaults federal student loans have to leave the Social Security recipient with at least $750 a month. Though that might seem like a small victory, this threshold hasn't been adjusted for inflation for 18 years, meaning seniors are getting the short end of the stick.

In 2015, according to the Government Accountability Office (GAO), approximately 173,000 Social Security recipients had their benefits garnished to pay down defaulted student loan debt. Per the GEO, this figure is expected to rise in the years to come.

3. Child support and alimony

Should you be delinquent on child support or alimony payments, your Social Security benefits can be garnished as well. According to Bankrate, the national Court Ordered Garnishment System handles child support and alimony delinquencies. A garnishment is based on the either the maximum reduction as outlined by the state where an individual lives or the maximum as allowed under the Consumer Credit Protection act (CCPA), whichever is less.

Under the CCPA, up to half your benefits can be seized if you are supporting a child or spouse in addition to the one involved in the court order, or up to 60% if you're not supporting another child or spouse. If the original court order is more than 12 weeks in arrears, up to 65% of your benefits can be garnished.

The smartest thing to do if you're in arrears

If you're delinquent and owe the federal government money, about the only move you can make that would be the wrong one is doing absolutely nothing.

Obviously, paying off the debt completely and making it go away would be the desired outcome, but that's probably not possible for most folks who are in arrears. The smartest thing you can do is speak directly with the agency in question to work out a payment plan. According to Carolyn Carter, the deputy director of advocacy at the National Consumer Law Center:

As with any debt in arrears, it's often incredibly troublesome and/or time-consuming for an agency to take the added steps to garnish benefits. The IRS is almost always willing to work out a payment plan with those folks who owe past-due taxes. Now, this doesn't mean there aren't added fees and penalties for doing so, but it does mean you won't face Social Security benefit garnishments if you stick to the repayment plan. In fact, an arrangement known as an "Offer in Compromise" may be able to lower the aggregate amount you owe the IRS. Applying for an Offer in Compromise will cost you $186, but it could be well worth it.

Long story short, it's up to you to be proactive and resolve the situation should you find yourself delinquent on federal debts or civil judgments. If you fail to do so, your guaranteed source of income during retirement could be a lot smaller than expected as a result of garnishments.

The $16,122 Social Security bonus most retirees completely overlook If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $16,122 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.

The Motley Fool has a disclosure policy.