If You Owe Federal Taxes Will the Government Take Your Unemployment?

If you owe delinquent taxes to the federal government, the Internal Revenue Service can seize some types of assets and income to satisfy that debt, but unemployment income is not among them. The IRS rules unequivocally exempt unemployment income from seizure or garnishment. The situation may be different if you owe delinquent state taxes, because state rules vary.

IRS regulations spell out several exemptions from the property and income that can be seized to cover delinquent taxes. Uncle Sam will not take your clothes and schoolbooks or objects that you need to earn a living; nor will it take food, furniture or fuel, although there is a limit to the dollar value of exempt professional and personal belongings. While unemployment benefits are exempt, certain types of retirement and disability payments are not, nor are survivors' benefits.

The federal government exempts worker's compensation payments, public assistance payments and money destined to pay child support from seizure to satisfy a federal tax debt. There also is a maximum for how much of your pay can be garnished after you get another job. Garnishment sends a portion of your paycheck directly to a debtor. This process is governed by state law, so the percentage that the IRS or any other creditor can take varies from state to state.

While unemployment is exempt from being seized by the IRS, stuff you've purchased is not. If you have personal belongings worth good money, such as a fancy car, the IRS can seize them to cover delinquent taxes. No seizure of property is a surprise, however. The IRS doesn't sneak around. It won't go through your undelivered mail looking for checks, for instance. The IRS has to warn you that collection is imminent by way of a pre-levy notice sent at least 30 days in advance. You will have 10 business days to contest the seizure through the collection appeals program.

The states have their own laws about collecting past-due taxes. Michigan, for instance, files a lien on the delinquent taxpayer's real estate and personal property as a backup -- even if there's a payment plan in place and you're up-to-date with payments. A lien means if you sell your property, you get only the proceeds that are left over after the money you owe is paid. A lien remains on the taxpayer's credit report for seven to ten years. Washington, New York, Rhode Island, Nebraska and other states use their web sites to publish the names of individuals and companies with large tax debts.