June 30, 2014

TSP administrators two years ago established a process to deduct funds from TSP accounts of participants who were declared by a court to be late in paying child support.

Now administrators are proposing to do the same for TSP participants who owe back taxes.

According to statistics in mid-2013, 3.3% of federal employees owed back taxes for a total of $3.3 billion.

While that’s an eye-popping number, the IRS noted that this is less than half the general population, with at least 8.7% owing back taxes.

(Still, that hasn’t dampened the reaction from some corners of society – or some members of Congress. One commentator recently reviewed the “fire tax delinquent feds movement here”.)

According to a newly proposed rule filed Friday with the Federal Register, the Federal Retirement Thrift Investment Board (FRTIB) proposes to amend its regulations to include the Board’s procedures for responding to tax levies and criminal restitution orders that comply with statutory requirements.

The proposal notes that “the TSP’s governing statute includes an anti-alienation provision that protects funds from execution, levy, attachment, garnishment, or other legal process, except for certain enumerated exceptions.” Until now, however, the exceptions have not included federal tax levies.

The new legal process is in accordance with legislation enacted in January 2013 directing “that accounts in the Thrift Savings Fund are subject to certain Federal tax levies.”

Tax levies will join child support obligations, alimony obligations, and restitution pursuant to the Mandatory Victims Restitution Act (MVRA) as the only permissible reasons funds can be legally diverted from a TSP participant’s account.

In case you’re curious, here’s how the TSP would handle the order, once received:

“…after the TSP receives a document that purports to be a qualifying tax levy or criminal restitution order, the participant’s account will be frozen. After the participant’s account is frozen, no withdrawal or loan disbursements will be allowed until the account is unfrozen. All other account activity will be permitted, including contributions, loan repayments, adjustments, contribution allocations and interfund transfers. Once a disbursement from the account is made in accordance with the restitution order or levy, the hold will be removed from the participant’s account.”

The bigger question is, would delinquent feds have enough in their TSP accounts to cover their delinquent taxes?