Can your Social Security and retirement pay be garnished? In a word: No. But in two words: Well, maybe. And in a phrase: Depends on who’s doing the garnishing. 

First, They See You in Court

Here’s how garnishing works: A creditor—let’s call him Mr. Potter—hauls you to, say, the Bedford Falls Courthouse and wins a judgment against you. Let's call you George. We're guessing there are a few fans of the movie It's a Wonderful Life out there.

Key Takeaways

  • The U.S. Treasury can garnish your Social Security benefits for unpaid debts such as back taxes, child or spousal support, or a federal student loan that’s in default.
  • If you owe money to the IRS, a court order is not required to garnish your benefits.
  • You’ll have to shell out 15% of your Social Security for back taxes and as much as 65% for alimony or child support owed. 

Then the creditor asks the judge for an order to garnish your wages, bank account, and any other assets you may have, such as that dusty painting in the hideous old frame, even though the thing's been in the Bailey family forever.

Where You Can Win Some

What Pottercorp (aka “They”) can’t take is federal benefit payments. We’re talking Social Security, veteran’s benefits, Railroad Retirement, and Office of Personnel Management retirement. Especially if “They” (aka Pottercorp) has issued you a credit card or auto loan, and your payment is late.

Creditors holding medical bills, along with personal and payday loans, are also prohibited from garnishing these benefits. That’s according to Section 207 of the Social Security Act. It’s the law.

If you’re not ordered to pay back taxes or child support, then the bank has to review the history of your account (or accounts) for two months prior to receiving the garnishment order. If your Social Security or other protected benefits have been directly deposited into your accounts within that two months—the so-called look-back period—the bank must protect the funds up to the total of the direct deposits. You’re free to spend it on anything, including a flaming rum punch for Clarence the Angel.

And You Can Lose Some

Not so fast, George Bailey! If you’re still working, that mean old Mr. Potter—your legitimate creditor—can garnish your wages and, depending on the state you live in, other allowable assets you have, like the house, car, or even that moldy old Monet. Welcome to It's-a-Not-So-Wonderful-Life renting a shack in Pottersville.

Here Come the Feds

However, say you owe the federal government back taxes. Well, the Treasury Department is colder and nastier than Mr. Potter. You’re going to fork over 15% of your Social Security. If you owe alimony or child support, they can get involved in that too: You may have to fork over as much as 50% to 65%. The IRS doesn't require a court order to garnish your benefits, either—it can do it on its own.

Once your bank, the Bailey Building and Loan, receives the garnishment order, it has two business days to conduct a review and identify your accounts. If the order is to collect federal taxes or child support, the Building and Loan may freeze those accounts, even if the money is from Social Security.

If you make an arrangement with the IRS to pay off back taxes, it will no longer garnish your Social Security benefits as long as you follow through.

Plans set up under the Employee Retirement Income Security Act (ERISA), like 401(k)s, are generally protected from judgment creditors. The fact that 401(k) plans legally belong to your employer also offers some protection from federal tax liens.

Overdue-Student-Loan Blues

George Bailey didn’t go to college and didn’t need to take out a federal student loan. But if he had and then became delinquent on it, the government could take up to 15% of the outstanding debt. But it would have to keep its sticky fingers off the first $750 of his monthly benefits.

For example, if he got $850 in benefits, 15% of that would be $127.50. But since he can't be given less than $750, the most that can be taken is $100. This rule applies only to federal student loans, not private loans.

The Bottom Line

If you are in danger of having your Social Security or retirement income garnished and it doesn’t seem like it's going to end happily like the movie It’s a Wonderful Life, get legal help. The American Bar Association provides links to free and low-cost lawyers who can advise you.