IRS Levy on an OPM Retirement Annuity (CSRS or FERS)

Retired federal employees often find out about an old IRS balance the same way: the monthly OPM deposit is short. The Federal Payment Levy Program has started taking 15%. Here is how levies on OPM annuities work and what you can do.

Two ways the IRS levies an annuity

The Federal Payment Levy Program

IRC 6331(h) authorizes a continuous levy on up to 15% of specified federal payments. IRM 5.11.7 lists "Civil Service or Federal employee retirement pension annuities," administered through OPM under CSRS and FERS, as subject to the FPLP, and states "the FPLP will levy 15% of the payment." Before the levy, you get a CP 90 Collection Due Process notice by certified mail, and the levy goes out at least ten weeks after that notice if you do not request a hearing.

A paper levy on OPM

IRM 5.11.6.2.3 says a revenue officer can also send a paper levy to OPM, and to expect the first payment two to three months later. A paper levy is not limited to 15%. It reaches the annuity minus the exempt amount under IRC 6334(a)(9) and (d), which is based on your standard deduction and dependents. That exempt amount is usually much less generous than keeping 85%.

What is not reached

• TSP annuity payments. IRM 5.11.7 states: "The FPLP does not levy the annuity payments in the Federal retirement Thrift Savings Plan (TSP)." The TSP account itself can be levied by other means. See IRS levies on TSP accounts.
• Survivor annuities under military plans. IRC 6334(a)(6) exempts certain annuities based on military retired pay, such as Survivor Benefit Plan annuities. That is a military benefit, not an OPM one.

Note one difference from other retirees. IRM 5.11.7.3.2.3 describes a low income filter that keeps taxpayers out of the FPLP if their estimated income is below 250% of the federal poverty guidelines, but it lists Social Security, military retirement and Railroad Retirement benefits. OPM annuities are not on that list. A low-income OPM annuitant should not assume the filter protects them. Ask for hardship status instead.

Joint returns and a spouse's annuity

A joint return makes both spouses liable for the whole balance. IRM 5.11.7 notes that starting January 2006 the FPLP began matching and levying federal payments for secondary and cross-reference Social Security numbers on joint and sole proprietor accounts, not just the primary taxpayer. So a retired federal employee's annuity can be levied for a joint balance even if the retiree was listed second on the return. If the liability really belongs to the other spouse, look at innocent spouse or separation of liability relief, and get advice before assuming the annuity is safe.

Watch for a double levy

If a revenue officer also served a paper levy on OPM, two levies may hit the same payment. IRM 5.11.7.3.7 calls that a double levy and says the proceeds of the improper levy may be returned and that levy released. A sudden drop far beyond 15% is the clue.

Hardship and FERDI

Federal retirees are in the IRS's Federal Employee/Retiree Delinquency Initiative. IRM 5.1.7.8.3 says a FERDI case may be closed as Currently Not Collectible when the taxpayer cannot pay reasonable basic living expenses, and that levies "cannot be issued or left in place" if the taxpayer meets CNC hardship criteria. See FERDI and CNC status.

Fifteen percent of a fixed annuity can be the difference between paying for medicine and not. That is what hardship relief is for.

Monthly payments make timing workable

Because OPM pays monthly, the FPLP release process is more predictable than it is for salaries. IRM 5.11.7 walks through examples:

• A retiree levied on November 1 who got an installment agreement on November 2: the release posted before the processing cutoff, about two weeks before December 1, so the December payment was not levied.
• A retiree whose agreement was approved on July 15: the release posted too late to save the August 1 payment, but the September payment was protected.
• A retiree approved on November 10: the revenue officer asked the FPLP coordinator to "rescind" the levy, which the manual says can work for monthly payments like OPM annuities when done before the processing cutoff, about 14 days before the payment date.

The lesson: if your resolution lands within two weeks of the next annuity payment, ask specifically about rescinding that payment's levy.

Getting levied payments back

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

Release near the end of the collection period

The IRS generally has ten years from assessment to collect under IRC 6502. IRM 5.11.6.2.3 notes that the FPLP systemically releases the levy within 90 days before the collection statute expires, while a paper levy is honored until a release is issued. If you are close to the end of the collection period, check whether a paper levy is in place and make sure it is released.

Practical steps

1. Read the CP 90 or levy notice. Note the tax years.
2. Pull your IRS account transcripts. Check the assessment dates and collection statute dates.
3. Prepare a financial statement. Include the annuity, Social Security, any VA benefits and a spouse's income.
4. Propose an installment agreement or request hardship status. See installment agreements.
5. Ask for release, rescission of the next payment's levy if timing allows, and return of levied payments.

A levy on a pension feels permanent. It is not. It is a continuous levy that stays until someone releases it. Get the release.