Social Security is the literal lifeblood for millions of retirees. Once those benefits start to flow, nothing can keep them from arriving in your bank account like clockwork, month after month – or at least, that’s what many of us prefer to believe. The reality is, however, that there are a few hiccups that can reduce those payments considerably.

We’re not talking about the depletion of the Trust Fund, due to happen early in the next decade, and potentially triggering a significant cut in benefits. Nor are we talking about the threat of a government shutdown due to the battle of wills currently raging between the House and the Biden Administration. No, in this case one of the threats to your benefits may lie in certain unpaid debts. As it turns out, for specific types of debt, your Social Security benefits can be garnished, just like most other types of income.

In this recent article from NextAvenue, financial writer Terri Williams explains that your Social Security benefits can’t generally be withheld to pay off most types of consumer debt, but there are cases where the money you owe can cause your payments to be reduced. Let’s take a look.

70 Million People Count on Social Security

“In 2021, the latest year with full data, 70 million people received benefits from programs administered by the Social Security Administration,” Williams writes. She notes that retired workers make up the largest share of recipients, followed by those on Social Security disability. Many spouses and children of those workers also are beneficiaries.

There’s no doubt that Social Security is absolutely essential for the health and wellbeing of beneficiaries, especially older ones. “For most retirees,” says Williams, “Social Security accounts for more than half of their income, according to the Census Bureau — and for some, it makes up most or almost all, of their income.”

So, if lives are often depending on those payments arriving, Williams raises a question: “What happens when people receiving Social Security benefits have unpaid debt?” she asks. “Can those Social Security benefits be withheld, or garnished, to settle those debts?” For some debts, the answer is yes.

Garnishment Depends on the Type of Debt

There’s a section in the Social Security Act (Section 459 if you care to read it) that lays out the rules under which Social Security can attach income for some delinquent debts that you owe — but as we stated above, your degree of exposure depends on the type of debt.

For her NextAvenue report, Williams spoke with financial attorney Leslie Tayne of Tayne Law Group in New York. “Federal law generally prohibits garnishing Social Security benefits, but they can be garnished under certain circumstances,” Tayne explains. On the “prohibited” list, says Tayne: most common consumer loans including credit card debt or a car loan. Your benefits can’t be seized if you’re delinquent on these.

But back taxes, alimony payments, and criminal restitution payments can all trigger garnishment of a portion – sometimes a big portion – of your Social Security benefits. “The amount that can be withheld from your benefits depends on which of those obligations you are responsible for,” says Williams.

“Gray Divorce” Causes More Seniors to Pay Spousal Support

“The most common phenomenon since 1990 is ‘gray divorce’ (divorce after 50, described in this NextAvenue article) and it often occurs between two Social Security recipients (or one). [In that case] the court can order spousal support be paid from Social Security benefits,” says Michigan attorney Derek Jacques, who specializes in personal bankruptcy/debt relief, divorce and family law. These forced payments can really whittle down those benefits.

New York attorney Leslie Tayne told Williams, “The maximum amount that can be garnished for child support and alimony is 50 percent to 65 percent, depending on the circumstances.” She adds that, while the number of ex-spouses you have doesn’t affect the rate at which your wages are attached, the amount that can be withheld does change depending on whether you currently support a family.

“If you don’t currently support another child or spouse, up to 60 percent of your benefits can be garnished,” Tayne told NextAvenue. But, for example, if you got remarried and had another child, up to 50 percent of your benefits can be garnished. “In either case, if you’re more than 12 weeks behind on payments, an additional 5 percent can be withheld.”

Retired Dads Required to Pay Past-Due Child Support

If a father is delinquent on child support payments, once he retires he may find that Social Security officials have a long memory. “Child support payments are another scenario in which Social Security benefits can be garnished,” Williams writes.

“The Debt Collection Improvement Act, passed in 1996, gives the Treasury Department the authorization to withhold Social Security for certain debt — and one of them is child support debt,” attorney Derek Jacques explains. “This has actually been instrumental in collecting back child support from now-retired delinquent fathers.”

Tayne told Williams that “the maximum amount that can be garnished for child support is between 50 percent and 65 percent, depending on the circumstances.”

Uncle Sam Wants You – to Pay Your Taxes

Apart from alimony and child support, tax delinquency is another trigger that jeopardizes Social Security benefits. “If you’re behind in paying your federal taxes, the Internal Revenue Service can have a court garnish your Social Security benefits,” Williams warns. “Under the Federal Payment Levy Program, Jacques says the Treasury Department can garnish up to 15 percent of your benefits until your federal tax debt is paid off.”

That 15 percent may sound like less money is at risk, but in fact your IRS debt can create a major burden. As attorney Tayne explains, when Social Security benefits are garnished to pay down student loans and non-tax debt, rules require that beneficiaries must be left with at least $750 in benefits. But that provision does not apply when you owe federal tax debt.

“The full 15 percent of your Social Security benefits can be seized, regardless of how much money is left,” she says.

Garnishment for Student Loan Debt

“According to the New York Federal Reserve, in the fourth quarter of 2022, outstanding student loan debt totaled $1.6 trillion, Williams writes. “Social Security benefits can be attached for student loans, but there are a lot of variables at play.” The biggest variable is the rule cited above that this type of garnishment can’t leave you with less than $750 in benefits.

 “The maximum amount that can be garnished for federal student loans is 15 percent,” Tayne told Williams. However, Tayne notes that this garnishment can’t leave you with less than $750 in benefits. She cites an example of someone receiving $800 in benefits per month. The 15 percent garnishment equals $120 – but garnishing that amount would leave the beneficiary with only $680 in benefits. In that case, Tayne explains, the most that could be taken is $50.

(The NextAvenue article also point out that student loan collection efforts are currently paused under the terms of a new debt relief initiative known as Fresh Start. Wage garnishment for student loans won’t resume until at least December 31, 2023. Other rules changes concerning student loan forgiveness are still being debated at the federal level.)

Crime Does Not Pay, But You’ll Have To

In the unlikely event that you’ve been ordered by the court to pay restitution in a criminal case, says NextAvenue, your Social Security benefits can be garnished if you fail to pay up. “There is no relief for lawbreakers who are under a court order to pay back people they have stolen from,” Williams writes. Attorney Jacques told Williams that, if you’ve been convicted of a crime and owe restitution, your Social Security benefits can be withheld by the Treasury Department as well, up to a maximum of 25 percent.

But the rules are different for people who file for debt relief under Chapter 7 of the Bankruptcy Code. According to Jacques, when people file they take a “means test” that explicitly tells them NOT to include their Social Security benefits in their income. “Bankruptcy does not impact your Social Security benefits,” Jacques adds.

In the unlikely event that your benefits are withheld to repay bankruptcy debts, NextAvenue recommends filing an appeal with the Treasury Department. “The Social Security Administration is not authorized to overrule a garnishment ordered by the Treasury,” says Jacques. “The best thing anyone can do is hire a good bankruptcy attorney who has experience in appealing in federal court, which is where the proceedings would take place.”

So the bottom line is pretty clear: certain types of bad debts can whack anywhere between 15 and 60 percent off your Social Security benefits. We hope that being forewarned will better prepare us all to keep our financial houses in order.

Breaking News: Rajiv’s New Book is Here!

We have big news! The long-awaited book by Rajiv Nagaich, called Your Retirement: Dream or Disaster, has been released and is now available to the public.  As a friend of AgingOptions, we know you’ll want to get your copy and spread the word.

You’ve heard Rajiv say it repeatedly: 70 percent of retirement plans will fail. If you know someone whose retirement turned into a nightmare when they were forced into a nursing home, went broke paying for care, or became a burden to their families – and you want to make sure it doesn’t happen to you – then this book is must-read.

Through stories, examples, and personal insights, Rajiv takes us along on his journey of expanding awareness about a problem that few are willing to talk about, yet it’s one that results in millions of Americans sleepwalking their way into their worst nightmares about aging. Rajiv lays bare the shortcomings of traditional retirement planning advice, exposes the biases many professionals have about what is best for older adults, and much more.

Rajiv then offers a solution: LifePlanning, his groundbreaking approach to retirement planning. Rajiv explains the essential planning steps and, most importantly, how to develop the framework for these elements to work in concert toward your most deeply held retirement goals.

Your retirement can be the exciting and fulfilling life you’ve always wanted it to be. Start by reading and sharing Rajiv’s important new book. And remember, Age On, everyone!

(originally reported at www.nextavenue.org)