IRS Levies on Private Pensions and Annuity Payments

Many Pinellas retirees receive a pension from a former private employer or an annuity they bought years ago. Those monthly payments feel like wages. In one important way, the IRS treats them that way too: a single levy can reach payment after payment.

Pensions are not exempt

Private pension and annuity payments are not on the list of property exempt from levy in IRC 6334(a). The only pension and annuity payments the statute protects are specific federal programs in 6334(a)(6): Railroad Retirement annuities, Medal of Honor special pensions, and certain military survivor annuities. Section 6334(c) says nothing else is exempt.

The IRS does instruct its employees to be careful. IRM 5.11.6.2 tells Revenue Officers to use discretion in deciding whether retirement income should be levied, and refers them to the pre-levy considerations in IRM 5.11.1.3.1. Discretion is not a prohibition.

Why one levy reaches future payments

Under IRC 6331(b), a levy generally reaches only property and obligations that exist when it is served. Section 6331(e) makes levies on salary and wages continuous. Pensions are not wages, so how does one levy keep collecting?

The answer is in IRM 5.11.6.2. A levy attaches to a fixed and determinable right to receive future payments. If you have a vested right to monthly pension payments, the levy attaches to that right and reaches each payment as it becomes due. The IRM says a levy on retirement income can reach future payments whether or not you have started receiving them when the levy is served. If you have the right to receive payments but have not elected to start them, the levy attaches to that right too.

The statute of limitations twist

Here is the part most people miss. Normally, the IRS must release a levy once the collection statute expires under IRC 6502. Treasury Regulation 301.6343-1(b)(1)(ii) makes an exception. A levy on a fixed and determinable right to payment, including payments due after the statute expires, does not become unenforceable when the period ends, and it is not released on that ground unless the liability is satisfied. IRM 5.11.6.2 says the same: a timely levy on pension or Social Security rights remains enforceable to the extent of the value of the property levied.

So a pension levy served in year nine of a ten-year collection period can keep collecting in year twelve. Retirees who are waiting out the statute need to know this.

How much a paper levy can take

When a Revenue Officer levies a pension with a paper notice, the payor must leave you the exempt amount under IRC 6334(a)(9) and (d). The exemption covers wages, salary, and "income derived from other sources." The exempt amount is based on the standard deduction plus an amount for each dependent, divided into a weekly figure. IRS Publication 1494 publishes the tables each year, and they account for filing status, dependents, and the additional standard deduction for taxpayers who are 65 or older or blind.

To get the correct exemption, you complete the statement of exemptions and filing status that comes with the levy and return it to the payor. If you do not, the statute says the exemption is computed as if you were married filing separately with no dependents, which is the smallest amount. Fill it out.

Everything above the exempt amount goes to the IRS. For a retiree with a modest pension, the exempt amount may cover most of it. For a larger pension, the levy can take a substantial share. The paper levy process and the exemption rules overlap with wage levies; see IRS wage levies in Pinellas County.

Two levies at once

A retiree with both a pension and Social Security can face more than one levy at the same time: a paper levy on the pension and the automated 15 percent levy on Social Security. They are separate actions. Releasing one does not release the other, so any release request should name every levy source.

The IRM also addresses the overlap on Social Security itself. If SSA receives a paper levy while an FPLP levy is already in place, IRM 5.11.7 explains that SSA will honor the paper levy in lieu of the FPLP levy, and the FPLP levy must be removed from the account. Since a paper levy can take everything above the exempt amount instead of a flat 15 percent, that switch can sharply increase how much is taken. If a Revenue Officer is assigned to your case and you receive Social Security, ask directly whether a paper levy is planned.

Check each pension statement after any IRS contact. Plan administrators deduct levy payments the same way they deduct withholding, and the line is easy to miss.

Federal pensions use a different route

Federal civil service retirement payments are also subject to the automated Federal Payment Levy Program at up to 15 percent under IRC 6331(h). That is a separate system from the paper levy described here. If your pension comes from a private employer or a commercial insurer, the FPLP does not apply to it.

Annuities

A commercial annuity raises two different levy targets:

• Before payout: the cash surrender value of a deferred annuity is property the IRS can levy, subject to contract terms.
• In payout: the stream of annuity payments is a fixed and determinable right, so a levy can reach each payment as it comes due, like a pension.

If the annuity is inside an IRA or employer plan, the retirement account procedures in IRM 5.11.6.3, including the flagrant conduct requirement, govern a levy on the account assets. See can the IRS levy your IRA in Florida? The IRM notes that its retirement-account rules do not govern levies on retirement income, which is covered by IRM 5.11.6.2.

Getting a pension levy released

The release rules in IRC 6343(a) apply. The IRS must release the levy if:

1. The liability is paid.
2. You enter an installment agreement, unless it provides otherwise.
3. The levy creates an economic hardship, meaning you cannot meet reasonable basic living expenses under Treas. Reg. 301.6343-1(b)(4).
4. Release would facilitate collection.

Note that the statute expiration ground does not help with a fixed and determinable right levied before the statute ran, for the reason explained above. The written release goes to the payor, who stops withholding for the IRS. Confirm with the plan that the release was received and processed. Pension administrators run monthly cycles, and a release that arrives after the cutoff will not stop that month's deduction.

The release process for Social Security is similar in substance. See how to stop or release an IRS Social Security levy.

When the pension is most of your income

For a retiree whose pension and Social Security are the whole budget, a pension levy can quickly cross into economic hardship. Treas. Reg. 301.6343-1(b)(4) requires the IRS to consider your age, inability to earn, medical expenses, and the cost of living where you live. A financial statement showing that the levied pension no longer covers rent, utilities, food, insurance, and prescriptions supports a mandatory release. Pair that request with a currently not collectible closure so the next enforcement step does not simply pick up where the levy left off. See living on a fixed income and owing the IRS for how those determinations are made.

Preventing it

A pension levy almost never comes first. Before it, you received balance due notices and a Collection Due Process notice under IRC 6330 with 30 days to request a hearing. Responding at that stage with an installment agreement proposal or a hardship request keeps the levy from being issued. Once it is in place, you are negotiating from behind.

Next step

If your pension statement shows an IRS deduction, or the plan administrator sent you a levy notice, call (813) 229-7100. Bring the levy, your pension statement, and your last two IRS notices. The firm's page on IRS wage garnishment explains the closely related wage levy process.