Can Social Security benefits be garnished for debt?

Your social security benefits may be garnished for debt, depending on what kind of debt it is. (iStock)

Social Security promises to provide income to older Americans, but what happens to that income when you have debt? Unfortunately, the answer depends on the kind of debt you owe. Below is an explanation of when debt can lead to social security garnishment and when your payments will be kept safe.

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Can ​your retirement and Social Security be garnished?

There are certain debts that cause your Social Security payments to be garnished. These include federal debts like federal taxes, federal student loans, child support and alimony, and victim restitution.

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However, it’s important to note that each of the above types of debt has its own guidelines for garnishment. Here is what you need to know:

  • If you owe money toward federal taxes, the IRS can garnish up to 15 percent of your monthly benefits to satisfy your outstanding tax bill no matter how much money is in your account.
  • For student loans, up to 15 percent of your benefits can be taken and put towards paying your debt, provided that at least $750 will be left in your account. This rule applies no matter how old the outstanding debt may be. 
  • The guidelines surrounding the garnishment of child support and alimony vary by state, but up to 50 percent of your benefits can be garnished if you support more than one child, 60 percent if you only support one child, and 65 percent if you’re more than 12 weeks behind in payments. 

Can a credit card issuer garnish your Social Security benefits?

Fortunately, the Social Security Administration does not allow your benefits to be garnished in order to settle credit card debt. In fact, your Social Security benefits cannot be garnished to satisfy any debts other than the types listed above, including credit card debt, unsecured and consumer debt like personal loans, and medical debt.

That said, there is one caveat that you need to be aware of on this topic. If your Social Security benefits are deposited directly into your bank account, the bank is required by law to automatically protect them from garnishment whenever a creditor attempts to take money from your account. If, however, you receive a Social Security check and deposit it in the bank yourself, the bank can freeze your account when the creditor tries to take money from it. In that case, you would have to go to court to prove that the money in your account is from your Social Security benefits.

How can I protect my Social Security benefits?

If you’re in debt and you’re worried about having your retirement income garnished, there are things you can do to protect your benefits. The first step would be to reach out to the organization collecting the debt - either the IRS or the lender - to try and work out a payment plan. In most cases, the collector will allow you to pay off the debt over time rather than garnish your wages.

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If you have a significant amount of debt and you cannot afford all your payments, it may be best to hire an attorney or debt settlement firm to help you. These firms can often negotiate your debts and reach a settlement with your creditors. In some instances, they may even be able to resolve a portion of the debt entirely.

It also may be worth refinancing your debt. There are options to both refinance student loans and mortgages to make the debt you currently possess more manageable to pay off.

As a last resort, you could also consider filing for bankruptcy, but keep in mind that it is not a perfect solution. Many of the debts that can cause your Social Security wage to be garnished - including unpaid taxes and student loans - are also not dischargeable by bankruptcy,

How can you maximize your benefits  

Lastly, there are a few things you can do to maximize your Social Security payments. They’re listed below for your benefit:

  • Delay claiming until age 70: After you reach full retirement age, if you delay claiming your benefits, payments will rise by about 8 percent per year until you reach age 70. Once you hit 70, there is no further benefit.
  • Claim spousal benefits: You can either claim benefits based on your own work record or you can claim 50 percent of your spouse’s benefit, whichever is higher.  
  • Don’t earn too much in retirement: In 2020, at full retirement age, you can earn up to $48,600 before penalties are taken out. If you earn above that, Social Security will deduct one dollar for every three dollars you earn.