Frequently Asked Questions - Can The Internal Revenue Service (IRS) take a Workers Compensation settlement?
The Internal Revenue Service (IRS) has a variety of ways to attempt to collect an alleged debt for back owed taxes. The IRS is authorized to levy, or garnish, a substantial portion of your wages; to seize real and personal property you own, such as your home and your automobiles, and even take money that's owed to you. However, the IRS cannot take your workers’ compensation settlement for several reasons.
Under current Florida Workers' Compensation law, there are only a few situations when an outside party can take any part of your settlement. With only limited exceptions, the Florida Statutes protect an injured worker’s benefits from the claims of creditors and from a collection of a debt.
According to Section 440.22, Florida Statutes,
“Compensation and benefits shall be exempt from all claims of creditors and from levy, execution and attachments, or another remedy for recovery or collection of a debt, which exemption may not be waived. However, the exemption of workers’ compensation claims from creditors does not extend to claims based on an award of child support or alimony.”
With the exception of unpaid child support and alimony, this statute clearly states that a court may not order the attachment of an injured worker’s workers’ compensation benefits to resolve a legal debt. In every workers’ compensation settlement, the Judge of Compensation Claims must approve certain portions of the settlement before it can be finalized, including ensuring that any unpaid child support obligations are taken into consideration.. In fact, one of the many functions of the Judge of Compensation Claims is to ensure that there are no child court arrearages and if so, allocate a portion of the settlement funds to satisfy some or all of the unpaid child support. However, IRS liens are not considered by the Judge when approving settlements for the reasons stated above.
Further, Federal Law also specifically excludes all types of workers' compensation payments at the current time. Therefore, the IRS cannot place a lien on a workers’ compensation settlement for any back taxes owed even if Florida chose to change the law on liens to include the IRS. And, the IRS cannot garnish any portion of your workers’ compensation settlement.
However, once the settlement is finalized and you come into possession of your settlement proceeds, this doesn’t mean that the IRS cannot then attempt to take legal action against you to recover any money owed. In other words, the IRS may try to come after your settlement proceeds once in your possession, just like any other asset. And, until the tax debt is paid off entirely, the IRS can also take your current tax refunds and all future federal and state income tax refunds. The IRS may seek to recover the tax debt in a variety of other ways as well.
Tax laws can be extremely confusing and complicated. For additional information regarding income tax obligations, you may want to visit the IRS website at: www.irs.gov. You may also want to contact a lawyer or tax professional for specific questions about IRS liens. Nevertheless, as indicated above, the IRS has no power to take any part of your settlement proceeds as part of your workers’ compensation settlement.
However, if you have unpaid child support, the Judge of Compensation Claims must take this into consideration at the time of settlement. With respect to any lump sum settlement, the Judge must consider at the time of the settlement whether the settlement allocation provides the appropriate recovery of child support arrearages. When reviewing any settlement of a lump sum settlement, a Judge of Compensation Claims “shall consider the interests of the worker and the worker’s family when approving the settlement, which must consider and provide for appropriate recovery of past due support.”
In every case, the parties must provide to the Judge of Compensation Claims a copy of current documentation from the Department of Revenue outlining any child support arrearages. You will also be asked to sign documents confirming any child support arrearages under penalty of perjury. If no child support is owed based on the documentation obtained, none of your settlement proceeds will be taken from the workers’ compensation settlement.
If the Department of Revenue determines that child support is owed, the Judge of Compensation Claims will set aside up to half of your net proceeds to satisfy the child support obligations. For example, let’s say you settle your workers’ compensation settlement and your net proceeds (after payment of all attorney’s fees and costs) are $10,000 in your pocket. However, it is determined that you owe a total of $10,000 in child support. The court would take up to half of your settlement ($5,000) with you receiving the other half. You would receive $5,000 and child support would receive the remaining $5,000. The same would be true if you owed in excess of $10,000 since again, the court will not take more than half of your net settlement. Using the same example with a $10,000 net settlement, let’s say you only owe $2,000 in child support. The court would set aside $2,000 to satisfy the child support obligations with you receiving the remaining $8,000. Once it is determined how much child support is owed, your workers’ compensation attorney can advise you as to how the unpaid child support will affect your net proceeds in your pocket.
Many people are unsure if they owe back child support. Others may dispute the amount claimed by the Department of Revenue despite what the Department of Revenue’s documentation shows. This is a dispute that needs to be handled by you and child support. Your workers’ compensation attorney has no power or recourse to resolve any unresolved child support issues. And, the Judge of Compensation Claims will not take anything into consideration other than what child support contends that you owe. Thus, if you dispute any potential child support arrearages, you should contact a Family Law lawyer to resolve any such dispute as soon as possible prior to settling your workers’ compensation claim.