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October 26, 2020
Overview of the Treasury Department’s Federal Payment Levy
and Treasury Offset Programs
The U.S. Department of the Treasury, through the Bureau
Origin and Operation of the FPLP
of Fiscal Service (BFS), has two programs for collecting
The Federal Payment Levy Program was established by the
delinquent debt owed by individuals, businesses, and other
Taxpayer Relief Act of 1997 (TRA97, P.L. 105-34) in
entities to federal and state government agencies. They
Section 6331(h) of the Internal Revenue Code (IRC).
differ mainly by the type of debt each program collects.
Congress intended the FPLP to improve the collection of
delinquent federal taxes in two ways. First, the program
The Federal Payment Levy Program (FPLP) collects
allows the IRS to share with the BFS the taxpayer
delinquent federal tax debt only. In this case, the BFS
information needed to set up a continuous levy for specific
collaborates with the Internal Revenue Service (IRS) to
taxpayer accounts. Second, IRC Section 6331(h) authorizes
collect this debt by placing a continuous levy on eligible
the IRS to activate a levy (or offset) on certain federal
federal payments to delinquent taxpayers.
payments to delinquent taxpayers. Before TRA97 was
enacted, the IRS was not permitted to establish an
The Treasury Offset Program (TOP) collects a variety of
automatic process for offsetting federal payments to tax
state tax and nontax debt and federal nontax debt. In this
debtholders. The BFS and IRS have jointly managed the
case, the BFS collaborates with federal and state
program since it began in July 2000.
government agencies to collect delinquent debt (including
past-due child support) by offsetting certain federal
The FPLP facilitates the collection of delinquent federal
payments to delinquent individuals. Federal nontax debt
taxes by levying designated federal payments disbursed by
consists of direct loans, defaulted guaranteed loans,
BFS to businesses and individuals holding such debt. A
administrative debt (e.g., s alary and benefit overpayments),
levy remains in place until all delinquent taxes are paid in
and unpaid fines and penalties.
full, including penalties and accrued interest.
As Table 1 shows, the TOP collects over nine times the
Current law allows the following payments to be levied
amount of delinquent debt collected by the FPLP.
under the FPLP up to the specified limits:
Table 1. Amount of Delinquent Federal and State Tax
up to 15% of federal employee retirement annuities;
and Nontax Debt Collected Through the Federal
Payment Levy Program (FPLP) and the Treasury
up to the full amount of federal payments to federal
Offset Program (TOP), FY2015 to FY2018
vendors;
(Millions of Dollars)
up to the full amount of federal employee travel
TOP:
advances or reimbursements;
State Tax
TOP:
and
Federal
up to 15% of Social Security Old Age and Survivor
Fiscal
Nontax
Nontax
benefits and Railroad Retirement benefits, excluding
Year
FPLP
Debt
Debt
Total
disability and supplemental security income payments;
and
FY2015
$724
$3,063
$3,252
$7,039
FY2016
$692
$2,927
$3,525
$7,144
up to 15% of some federal salaries.
FY2017
$683
$2,850
$3,724
$7,257
These limits mean, for example, that for someone who
FY2018
$679
$2,712
$3,805
$7,196
receives a monthly Social Security retirement benefit of
$1,000, no more than $150 could be levied through the
Source: U.S. Department of the Treasury, U.S. Government
FPLP to pay a delinquent federal tax debt.
Receivables and Debt Col ection Activities of Federal Agencies, Fiscal Year
2018 Report to the Congress, August 2019.
To initiate a levy, the IRS sends an electronic file with tax
debt information to the BFS, which then adds it to the
Both programs rely on the same BFS database of persons
database for delinquent debt. The BFS then searches a
and companies with delinquent state and federal tax and
separate database of pending federal payments for a match
nontax debt. Federal and state agencies that collect such
between the name and taxpayer identification number (TIN)
debt or are owed delinquent debt (making them creditor
of the delinquent taxpayer and the name and TIN of persons
agencies) provide and update the information stored in the
scheduled to receive federal payments.
database.
https://crsreports.congress.gov
Overview of the Treasury Department’s Federal Payment Levy and Treasury Offset Programs
When a match is found, the BFS notifies the IRS, which in
also has the option of referring delinquent debt to TOP or
turn notifies that person of its intent to levy qualified
private debt collectors.
federal payments until his or her tax debt is paid in full. If
the person does not reply within 30 days, the IRS may
In general, the federal payments eligible for levy under the
authorize the BFS to initiate a continuous levy of those
FPLP are also eligible for offset through the TOP. The
payments. The levy remains in effect until the delinquent
same percentage limits apply in both cases. In addition, up
taxes are fully paid, or the person makes an arrangement
to 100% of federal income tax refunds may be offset,
with the IRS to settle her or his tax debt.
including refunds from refundable tax credits like the
earned income tax credit (EITC). Like the FPLP, certain
When a payment is levied, the BFS sends a letter to the
federal payments cannot be offset through the TOP. If
taxpayer explaining which payment was reduced and by
someone’s federal payments are subject to offset under the
how much, and advising the individual to contact the IRS to
TOP and to levy under the FPLP at the same time, paying
come to an agreement on paying off the debt.
off the tax debt is a higher priority. Only after the tax debt
has been paid in full can a payment be offset under the
Some federal tax debt cannot be collected through the
TOP.
FPLP. For example, the IRS cannot levy the assets of
persons who are in bankruptcy proceedings, who applied
The process of offsetting a federal payment through the
for tax relief as an innocent or injured spouse, who entered
TOP is similar to levying a federal payment under the
into an alternative payment agreement with the IRS (e.g.,
FPLP. Creditor agencies (federal and state) submit
offer-in-compromise), or who suffered specified hardships
information about delinquent debts to the BFS. Before it
(e.g., residing in a federally declared disaster area). Largely
disburses an eligible payment, BFS compares the payment
because of these limitations, 56% of the delinquent
information with information in its delinquent debtor
individual federal tax debt was exempt from the FPLP in
database. If there is a match, the BFS offsets the payment,
April 2020; the remaining 44% totaled $134.2 billion.
in whole or in part, to satisfy the debt.
The amount collected through continuous levy each year is
In the case of federal nontax debt, the BFS notifies the
a small fraction of the total amount of delinquent tax debt in
debtor, the creditor agency, and the paying agency when an
taxpayer accounts subject to active payment levy. This
offset is performed. The BFS transmits amounts collected
suggests that it can take a long time to pay off such debt,
through offset to the creditor agencies, after deducting the
especially in cases where less than the full amount of
fees it charges for conducting the offset. Federal nontax
eligible payments can be levied. Social Security payments,
debt cannot be referred to TOP if a debtor has filed for
only 15% of which can be levied through the FPLP,
bankruptcy or has applied for tax relief as an innocent or
accounted for 72% of the federal payments levied in the
injured spouse.
first six months of FY2020. The amount of delinquent
individual and business tax debt subject to FPLP levy in
Policy Issues Raised by the FPLP and the TOP
FY2019 totaled $107.3 billion, while tax debt paid through
Both programs have raised concern about their impact on
the program was $801.5 million (or 0.7% of the total.).
low-income individuals.
Origin and Operation of the TOP
In the case of the FPLP, one recurring issue has been
The Treasury Offset Program was enacted as part of the
whether to levy federal payments to low-income persons.
Debt Collection Improvement Act of 1996 (DCIA, P.L.
The main concern is that imposing a continuous levy on
104-134). The act authorized the Treasury Department to
payments to these individuals would lead to or exacerbate
create a centralized mechanism for reducing federal
financial hardship. Responding to pressure from the
payments to pay off delinquent federal nontax debt and a
National Taxpayer Advocate (NTA), the IRS placed a low-
variety of state debts, under IRC Sections 6402(d), 6402(e),
income filter (LIF) on the FPLP in January 2011 to prevent
and 3716.
low-income persons from having their federal payments
levied. Nonetheless, the eligibility requirements for the
Under the TOP, the BFS is allowed to offset a variety of
filter do not exempt all low-income persons from the FPLP.
federal payments to recover someone’s delinquent federal
nontax debt, unpaid child support, or certain delinquent
In the case of the TOP, a contentious issue has been
state tax and nontax debt. To be eligible for collection
offsetting the EITC to pay federal student loan debt of
through offset, federal nontax debt generally must be
borrowers who have defaulted on their loan payments. The
delinquent for more than 120 days, legally enforceable, and
credit is refundable and the largest federal antipoverty
referred to the TOP directly by a creditor agency or
program that offers cash benefits. Refunds received by
indirectly through the BFS’s Cross-Servicing Program
EITC recipients who have defaulted on federal student loan
(CSP), Treasury-designated debt collection centers, or the
payments are subject to offset under the TOP. Some have
Department of Justice.
called for exempting the EITC from offset because of its
financial benefits for low-income student loan borrowers.
For debts referred to the CSP, the BFS attempts to collect
them through a variety of actions. These include sending
demand letters and trying to establish phone contact with a
debtor; reporting debt to consumer or commercial credit
Gary Guenther, Analyst in Public Finance
bureaus; and garnishing the wages of a debtor. The BFS
IF11671
https://crsreports.congress.gov
Overview of the Treasury Department’s Federal Payment Levy and Treasury Offset Programs
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