In an attempt to step-up collection of past due income taxes, the IRS has announced that it will begin withholding up to 15% of Social Security benefits from certain taxpayers.
An estimated 232,000 taxpayers currently receiving Social Security benefits have unsettled income tax accounts. These taxpayers owe an average of $1,350 each.
The program will not only target taxpayers currently owing back taxes, but will go forward to collect outstanding income taxes in the future by withholding Social Security benefits. The General Accounting Office estimates the IRS may increase its collections by over $300 million annually by utilizing the new program.
The Taxpayer Relief Act of 1997 gave the IRS the power to recoup back income taxes from federal payments, but only now is the program being extended to include Social Security payments.
"The IRS has had the authority to do this for a few years but hasn't used it, most likely out of fear of bringing the wrath of Congress down upon itself for exercising its authority in a heavy-handed way against sacrosanct Social Security recipients -- even if they haven't paid their taxes," said Jim Seidel, a tax attorney and editor of RIA's Federal Taxes Weekly Alert in New York. "Apparently the IRS now feels it has enough safeguards in place to avoid a public relations disaster."
All affected taxpayers will receive a notice in October advising them that the IRS plans to withhold 15% of Social Security benefits to recover the income taxes owed. Taxpayers may opt to pay the income taxes or establish a payment plan in lieu of having their Social Security benefits consumed by this program. Those taxpayers who do not make other arrangements will face withholding of Social Security benefits beginning in February, 2002.
Taxpayers who live in federally-declared disaster areas, children, and recipients of lump-sum Social Security death benefits are not affected by this program.
"We don't want to pick on anyone," program director Henry Reches said. "We're just trying to collect money that is due to the government and bring people into compliance with tax laws."
"People should be aware that the government is doing a lot of computer-matching," said Avram Sacks, an analyst specializing in Social Security law for CCH. "In the back of people's minds, it has been that the government's right hand might not know what the left hand is doing. Now the government is rectifying that."