(September 11, 2014) The Internal Revenue Service can now officially dip into federal employees’ retirement savings to recoup delinquent tax debts.
The Federal Retirement Thrift Investment Board on Wednesday issued a final rule to implement a bill President Obama signed into law in early 2013 making TSP accounts subject to federal tax levies. Lawmakers who supported the measure said it corrected a loophole that gave federal employees “special treatment” private-sector employees did not receive.
The board issued a proposed rule in June, which was essentially unchanged in its final iteration. The rule requires FRTIB to notify enrollees that the agency received a levy and that it will be withdrawing funds from the account to pay off the debt.
The IRS has to have “gone through a number of steps” before dipping into a federal employee’s retirement account, according to Kim Weaver, a TSP spokeswoman. The board then has the full account at its disposal to pay debts owed to the tax agency. The levy must be paid in a one-time sum and cannot come from an account that is not yet vested.
The rule would also allow FRTIB to withdraw from a TSP enrollee’s account if the enrollee is required by federal court to pay criminal restitution. When the agency receives a tax levy or criminal restitution order, it would immediately place a freeze on the participant’s account until the payment is made.
The IRS can dip into civilian, military and beneficiary accounts. The Congressional Budget Office has estimated the law will result in an additional $24 million in revenue over a 10-year period.
About 318,000 federal employees and retirees — not including those who established payment plans — owed the IRS $3.31 billion in back taxes at the end of fiscal 2013. A Senate panel in May cleared a measure that would fire “seriously” tax delinquent feds, as well as prevent agencies from hiring new workers with outstanding tax debts. The House failed to pass a similar bill last year.