Social Security won't seize tax refunds to collect old debts

People who owe old debts to the Social Security Administration are getting a reprieve this tax season: The federal government won't be seizing their tax refunds.

Social Security Commissioner Carolyn Colvin suspended a debt collection program last spring in which thousands of people had tax refunds seized to recoup overpayments that happened more than a decade ago. Members of Congress complained that some people were being forced to repay benefits they received decades ago as children.

Following a review, the agency said Monday it will continue suspending the program this tax season while officials explore possible changes.

"The commissioner is concerned about the public perception about the way we're running this program," said Pete Spencer, Social Security's deputy commissioner for budget, finance, quality and management.

There is a catch: The debts won't go away. Eventually, when the debtors start receiving retirement benefits, Social Security can deduct the debts from their payments.

"We are bound by federal law to collect these debts and they don't go away," Spencer said.

The collection program was authorized by a 2008 change in the law that allows Social Security and other federal agencies, through the Treasury Department, to seize federal payments to recoup debts that are more than 10 years old. Previously, there was a 10-year limit on using the program.

In most cases, the seizures are tax refunds.

Last spring, the agency said it had identified 400,000 people with old debts totaling $714 million. About 300,000 people still have old debts, Spencer said. The rest were resolved, either through payment plans or, in some cases, the person died.

About 55 percent of the debts were for less than $1,000, Spencer said.

There are several scenarios in which people may have received overpayments as children. For example, when a parent of a minor child dies, the child may be eligible for survivor's benefits.

If there was an overpayment made on behalf of the child, that child could be held liable years later, as an adult.

Also, if a child is disabled, he or she may receive overpayments. Those overpayments would typically be taken out of current payments, once they are discovered.

But if disability payments were discontinued because the child's condition improved, Social Security could try to recoup the overpayments years later.

The Social Security Administration began reviewing the debt collection program last year after several members of Congress complained that people were being forced to repay overpayments that had gone to their parents or guardians.

That didn't happen, Spencer said.

"No one, absolutely no one, contrary to what was alleged in the press, no one was asked to pay back a debt that was a debt of their parent or another adult," Spencer said. "These were their debts."

The most common form of overpayment went to college students, Spencer said. From 1965 to 1985, children who lost parents could continue to receive survivor's benefits until they reached the age of 22, as long as they were full-time students. Since 1985, those benefits have ended at age 18, unless the beneficiary is still in high school.

Sometimes, a student would stop going to school without telling Social Security, so payments would continue until the agency found out, Spencer said.

"The main reason that these overpayments existed in the first place, this is what our study showed, is because the individual did not follow their reporting responsibilities," Spencer said. "They did not report to us, as they as they agreed to do, the fact that their status changed, that they started working, that they married, that they were put in jail, that they no longer were students."