U.S. Treasury Seizes Tax Refunds For Old Social Security Debts

U.S. Treasury Seizes Tax Refunds For Old Social Security Debts

The Social Security Administration recently called a halt to a controversial effort to collect debts that were more than 10 years old.  For the past three years the government has confiscated tax refunds of hundreds of thousands of taxpayers, claiming an overpayment of Social Security benefits, even though it had little or no proof, and few exact details, according to media reports.  In a letter to Treasury Secretary Jack Lew, Senator Charles E. Grassley (IA) said that government agencies were apparently "not properly notifying individuals or allowing them to inspect records of the debt they supposedly owe, which are violations of the law."

The debts in question involved cases decades old, and debts many taxpayers never even knew about — for benefits that were paid to their parents or guardians when they were children.  If an overpayment is made on behalf of a child (such as survivors benefits) the child could be held liable years later as an adult.

The aggressive collection efforts resulted from a one-line change tucked into the 2008 Farm Bill lifting the statute of limitations.  The U.S. Treasury seized a reported $1.9 billion in tax refunds this year alone — $75 million of that was for debts more than 10 years old.   The Social Security Administration says that 400,000 taxpayers collectively owe $714 million in debts that are more than 10 years old.

Acting Social Security Commissioner Carolyn Colvin said, "I have directed an immediate halt to further referrals under the Treasury Offset Program to recover debts owed to the agency that are 10 years old and older pending a thorough review of our responsibility and discretion under the current law."  But a week after the announcement The Washington Post reported that "many taxpayers say the government is still seizing refunds."  The Social Security Administration said letters to those taxpayers went out before the announcement, but it remains unclear whether they will get their money back.

Social Security defines an overpayment as "any time beneficiaries receive more than they should have."  This occurs for a number for reasons, but most frequently when Social Security isn’t notified of changes, such as a death of a beneficiary or excess earnings when working.  Overpayments can also be due to errors by the Social Security Administration, but even when the overpayments are Social Security's own fault, the beneficiary must prove he or she is not at fault.

According to the Social Security Handbook, when Social Security decides an overpayment has been made, a written notice will be sent to the overpaid individual or the legal representative (such as guardians or estates), if any.  People other than the beneficiary can be liable for overpayments if they are entitled to benefits on the same earnings record, like widows, divorced widows, spouses, divorced spouses, and children.

Overpayments are recovered by several means.  If the beneficiary is still alive, the overpayment may be sent back to the Social Security Administration, or the Administration will withhold benefits until the amount is paid in full.  Other means include seizing tax refunds, wage garnishments, settlements and civil suits.  When beneficiaries can't afford to repay the overpayment, a lesser withholding amount can be requested, or beneficiaries can contact Social Security to set up a monthly installment plan to repay the amount.  Those who don't agree that they have been overpaid can appeal.  Learn more about overpayments at SocialSecurity.gov.


Sources:  "Social Security, Treasury Target Taxpayers For Their Parents’ Decades-Old Debts," Marc Fisher, The Washington Post, April 10, 2014.      
"Social Security Stops Trying To Collect On Old Debts By Seizing Tax Refunds," Marc Fisher, The Washington Post, April 14, 2014.