IRS Levy on Military Retirement Pay: The 15% FPLP Levy and Paper Levies

You served twenty years or more, you retired, and now a piece of your retired pay is going to the IRS every month. That is the Federal Payment Levy Program at work. It is automated, it is continuous, and it will not stop on its own. Here is how it works and how to get it turned off.

Retired pay is not exempt

IRC 6334(a) lists the property exempt from levy. Military retired pay is not on the list. Section 6334(a)(6) does exempt "annuities based on retired or retainer pay under chapter 73 of title 10," which IRM 5.11.6.2.4 identifies as annuities under the Retired Serviceman's Family Protection Plan and the Survivor Benefit Plan. That protects survivors receiving SBP annuities. It does not protect the retiree's own retired pay.

Section 6334(a)(10) exempts certain service-connected disability payments under title 38, which covers VA disability compensation. That is a separate payment stream from DFAS retired pay. See VA disability benefits and IRS levies.

Two ways the IRS levies retired pay

The Federal Payment Levy Program (FPLP)

IRC 6331(h) authorizes a continuous levy of up to 15% of "specified payments," which includes federal payments other than means-tested ones. The IRM 5.11.7 table of payments subject to the FPLP lists military retirement payments administered by DFAS and states that the "FPLP will levy 15% of the payment."

Before the FPLP levy starts, the IRS sends a Collection Due Process notice. IRM 5.11.7 says if no CDP notice has already been issued, the system generates CP 90 (for individuals), mailed certified, and the levy is transmitted to the Bureau of the Fiscal Service at least ten weeks after that notice if no hearing is requested.

Paper levy through DFAS

A revenue officer can also serve a paper levy on DFAS. IRM 5.11.6.2.2 says to expect the first payment two to three months after the levy is sent. A levy received by the 15th of a month produces a first payment on the first business day of the second month after that; a levy received after the 15th, the third month.

Who the FPLP skips

The IRM includes two notes worth knowing:

• Disability and Medal of Honor. IRM 5.11.7 states that taxpayers receiving disability payments and Medal of Honor recipients will not be subject to the FPLP, and DFAS does not process the levy on those taxpayers.
• Low income filter. IRM 5.11.7.3.2.3 says taxpayers who would be levied on Social Security, military retirement or Railroad Retirement Board benefits are excluded from the FPLP if their estimated total income falls below 250% of the HHS poverty guidelines. There are exceptions, including having an unfiled return under your primary Social Security number.

If you think you fall in one of these groups and the levy hit anyway, raise it immediately.

Fifteen percent does not sound like much until you see it every month for years. It will not stop on its own.

Your rights before and after

The CP 90 or a Letter 1058 gives you the right to a Collection Due Process hearing if you request it within 30 days (IRC 6330). A timely request suspends the levy action while the hearing is pending. If you miss the 30 days, you can generally still request an equivalent hearing within a longer period, but it does not carry the same Tax Court review rights.

How to get it released

IRC 6343(a)(1) requires release when, among other things, you enter an installment agreement or the IRS determines the levy is creating an economic hardship. Practical paths:

• Installment agreement. Propose a monthly payment that fits. Once approved, the IRS codes the account and the FPLP levy releases. See installment agreements.
• Hardship. If paying would leave you unable to meet reasonable basic living expenses, ask for Currently Not Collectible status. See Currently Not Collectible for veterans.
• Offer in compromise. If you cannot pay the balance before the collection statute runs, an offer may fit. See offers in compromise for veterans.

Timing: why one more payment may get hit

The FPLP runs on Treasury payment cycles. IRM 5.11.7 explains that the release code has to post at least 14 days before a monthly payment date, and gives examples where a release posted too late to stop the next payment. The manual notes that for monthly payments, an FPLP coordinator can sometimes "rescind" a pending levy. If your release comes close to a payment date, ask about rescinding the next one.

Getting levied money back

IRM 5.11.7.3.7 says that when an FPLP levy is released because of economic hardship or because you entered an installment agreement, the levied payment may be returned, subject to the statutory time limit, and that "generally, it is in the Government's best interest to do so." For levies paid on or after March 23, 2017, the request must be made within two years of the levy payment. Ask for it.

Double levies

Sometimes a paper levy and an FPLP levy attach to the same payment. The IRM calls this a double levy and says proceeds from the improper levy may be returned and the incorrect levy released. If your retired pay suddenly drops by far more than 15%, check whether two levies are running.

The collection clock

The IRS generally has ten years after assessment to collect under IRC 6502. IRM 5.11.6.2.3 notes, for civil service retirement, that FPLP systemically releases the levy within 90 days before the collection statute expires. Know your Collection Statute Expiration Date. It shapes every strategy.

The FPLP is automated, but the release is not. Someone has to ask. Make sure it is you.