What is the Federal Payment Levy Program (FPLP)?
The Federal Payment Levy Program, or FPLP, is a way for the IRS to collect overdue taxes. Think of it like this: you owe the IRS money, and instead of just sending you bills and hoping you pay, they have a way to take the money directly from certain payments you might be getting from the federal government. It’s not the most pleasant situation, but it’s an effective method the IRS uses. Let’s dive in and make sure you understand this program a little better.
Background of the FPLP
The FPLP isn’t a brand-new concept. It grew out of the need for the IRS to have a more efficient method of collecting unpaid taxes. The idea is to use the government’s own payment systems to recover money owed to them. Before FPLP, the IRS had to rely on more traditional methods of collection, like sending notices and pursuing legal actions. This program allows them to intercept certain payments before they reach you, making it much harder to avoid paying your taxes.
How Does the FPLP Work?
The FPLP operates through a network of federal agencies. Here’s a breakdown:
* **Identifying Delinquent Taxpayers:** The IRS has a system for identifying taxpayers who owe back taxes. When your tax debt becomes severe, the IRS might decide to use the FPLP to collect what you owe.
* **Federal Payments Subject to Levy:** The IRS doesn't have access to every single payment you get. They can only levy certain federal payments. These include:
* Social Security benefits (limited to 15% for regular tax debt, potentially more for specific issues like defaulted student loans)
* Federal retirement payments
* Payments to federal employees and contractors
* Federal vendor payments
* Certain benefit payments
* **The Levy Process:** The IRS will send a notice to the agency responsible for making the payment you are due. This notice directs the agency to send a portion of your payment directly to the IRS. The agency will then begin withholding and sending the funds to the IRS until the tax debt, along with penalties and interest, is paid off.
* **Notification:** You will also receive a notice from the IRS informing you that your federal payments are being levied. This notice will also explain why your funds are being taken and how to fix it.
* **Percentage of Levy:** The most important thing to know is that usually only 15% of the payment is taken with the FPLP. However, sometimes the government can take more, especially when it comes to things like defaulted student loans which may involve different levy rates.
Examples of the FPLP in Action
Let’s look at some realistic scenarios to understand FPLP better:
* **Scenario 1: Social Security Benefits:** Imagine you are a retiree and owe a substantial amount in back taxes. You are receiving monthly Social Security benefits. The IRS might notify the Social Security Administration to withhold 15% of your monthly payment and send that directly to the IRS.
* **Scenario 2: Federal Contractor:** You are a contractor working with a federal agency, providing services to them. You have unpaid back taxes. The IRS could notify the agency that 15% of all future payments to you be sent to the IRS until the debt is resolved.
* **Scenario 3: Federal Employee:** Imagine you work directly for a federal government agency and owe back taxes. The IRS may notify your employing agency to withhold up to 15% of your wages and send that money directly to the IRS to cover your tax debt.
Who is Affected by the FPLP?
The FPLP impacts anyone who:
* Owes Federal Taxes: Individuals or businesses who owe back taxes to the IRS are at risk of having their federal payments levied.
* Receives Federal Payments: Those who receive Social Security benefits, federal retirement benefits, payments from federal jobs, and payments for services or goods to the government.
It’s crucial to be proactive if you know you owe back taxes to the IRS. Addressing the debt early on can help prevent having your federal payments levied.
Related Tax Concepts and Terms
* **Tax Levy:** This is a general term for the legal seizure of your property or funds to satisfy a tax debt. FPLP is one type of levy, but others include bank levies and wage garnishments.
* **Tax Lien:** A legal claim against your property as security for unpaid taxes. A tax lien may need to be satisfied before you can sell certain property.
* **IRS Notice CP504:** This is a notice the IRS sends before taking any collection action, like a levy. If you receive this notice, you must act quickly.
* **IRS Notice of Intent to Levy:** This notice is sent by the IRS explaining that if you do not take action your funds may be levied. If you receive this notice it is important to act immediately.
* **Offer in Compromise (OIC):** An agreement between you and the IRS that allows you to resolve your tax debt for a lower amount than what you originally owed.
* **Payment Plan:** An agreement to pay back your overdue taxes in monthly installments.
Tips to Avoid the FPLP
* **File on Time:** File your taxes on time every year, even if you can't pay everything you owe. By filing on time, you avoid additional fees and interest and can prevent a snowballing tax debt.
* **Pay Your Taxes:** If you can't pay your taxes in full, pay what you can and work to set up a payment plan with the IRS. Even small payments show the IRS you are trying to make an effort to pay what you owe.
* **Communicate with the IRS:** If you receive any notices from the IRS, read them carefully and contact the IRS if you have questions or concerns. Being proactive is extremely important to prevent any serious collection action from happening.
* **Seek Professional Help:** Consider working with a qualified tax professional who can guide you through the options available to deal with tax debt. They are experts and know the system well enough to help you find a solution for your financial situation.
* **Don't Ignore Notices:** If you receive an FPLP notice, take it seriously. Ignoring it will not make it go away. You should contact the IRS to come up with a plan to resolve your tax debt. Ignoring your tax debt will lead to more fees and interest being added to the balance.
Common Mistakes and Misconceptions about FPLP
* **Myth: The IRS can take all of my Social Security payments.** Not true. Generally, only 15% is levied for tax debts. There are some cases where they can take more.
* **Mistake: Ignoring IRS Notices.** Ignoring notices from the IRS will only make things worse. They will only pursue further collection actions if you don't reach out to solve the problem.
* **Misconception: The FPLP is a sudden thing.** The IRS sends out notices before they take action, so there will always be a warning before any levies occur. They also try different methods before resorting to levies.
* **Myth: The IRS doesn't care about financial hardship.** The IRS has programs to help people struggling financially. If you qualify, you might be able to settle your tax debt for less than what you owe.
The Federal Payment Levy Program is a serious tool that the IRS uses to collect unpaid taxes. However, understanding how it works and taking proactive steps can help you avoid being impacted. If you are unsure of the process or have questions you should seek the help of a tax professional who can help you navigate the tax system.