Uncle Sam Could Soon Dip Into Your TSP to Recover Tax Debts

The Internal Revenue Service will soon be able to dip into federal employees’ retirement savings to recoup delinquent tax debts, with the TSP’s governing board taking steps last week to finalize a 2013 law.

The Federal Retirement Thrift Investment Board issued a proposed rule Friday 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 IRS cannot yet issue levies on current or former federal workers’ TSP accounts, as the rule is not yet final. The rule would require 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 proposed rule would also allow FRTIB to withdraw from an 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 enrollee’s account until the payment is made.

The TSP board is requesting comments on its guidance over the next 60 days, and will issue a final rule on a yet to be determined date thereafter.

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. 

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