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No More Checks For Social Security Benefits

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I’ve been waiting for this day to come for a long time (actually, it came a few months ago)! Effective May 1, 2011, applicants filing for Social Security and Supplemental Security Income (SSI) benefit payments must choose either direct deposit or the Direct Express® debit card. There will be no option to receive your Social Security benefits by check.

This means that the Social Security Administration will not have to bear the cost of printing, mailing, and replacing checks for beneficiaries and recipients. Those that were already receiving their benefits by check before May 1, 2011, will have until March 1, 2013 to switch to direct deposit or the Direct Express® debit card.

How To Receive Your Social Security Benefits Through Direct Deposit

Since you no longer have an option to receive your Social Security benefits via a live check, there isn’t much for you to do. If you already have a bank account, you can set up direct deposit of your Supplemental Security Income or Social Security benefit payments through your bank.

You can also call the Social Security at 1-800-772-1213. Just have your bank information and Social Security number available when you call, and they can set things up for you. Since there are more stringent regulations on when a creditor can garnish Social Security benefits, those who avoided direct deposit as a means to ‘hide’ their benefits, should no longer have to do so.

Are There Any Exceptions To Receiving Your Social Security Benefits Electronically?

Those who are 90 years of age or older may still choose to receive paper checks. This also goes for those who are able to document a disability.

In my mind, these are the people who would benefit from electronic payments the most – they may have trouble getting to a bank to cash their checks, and then trying to buy things in person with cash.

What Is The Direct Express MasterCard?

If you are set to receive Social Security benefits, and you do not enter direct deposit information, your benefits will be paid through the Direct Express Debit MasterCard instead of by a paper check. The card is just what it sounds like, a debit card that you can use wherever MasterCard is accepted.

Your monthly benefits will be deposited onto your debit card, instead of deposited into your bank account. You will receive a personal identification number (PIN), that will allow you to withdraw cash from an ATM or merchant who provides cash back.

You are allowed one free cash withdrawal per deposit at ATMs in the Direct Express network. Also, you are able to make free withdrawals at the teller window at any MasterCard member bank (most banks).

You can even sign up for low balance alerts by phone, email, or text message. Unfortunately, if you wish to receive regular monthly statements, you will have to pay $0.75 per month. Although, you are able to view the last 90 days of activity online (which may be enough for most people).

There are other fees associated with the card, which you can find here.

The Bottom Line Regarding Electronic Social Security Benefits

According to the Social Security Administration, 85% of those receiving benefits do so electronically. Therefore, this new regulation will have no effect on the majority of beneficiaries.

I wasn’t able to find an estimate regarding the amount of money that will be saved by moving everyone to electronic payments, but with only 15% of recipients receiving paper checks, the numbers can’t be that great. This isn’t going to be the move that saves Social Security!

As with any of the social welfare programs, there is a real danger of it not being around in it’s current form in the not-to-distant future. Therefore, it is imperative that we take full advantage of the IRA contribution limits, 401k contribution limits, and a 401k employer match, while there is still time.

The decision on how to receive these payments is a major issue for those with no other forms of income. For others who still have time, we need to do everything we can to avoid depending on Social Security benefits to fully support us in retirement! For those who believe that they have run out of time, here are a few late retirement planning tips to help you catch up.

photo by DonkeyHotey

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The Treasury Department’s New Regulation To Protect Social Security Benefits

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Recently, the United States Treasury Department put a new rule into place that seeks to protect those the garnishment of Social Security benefits. When you are collecting, and depending on, Social Security benefits, it can be extremely difficult to deal with debt collectors. To then have your bank garnish your Social Security benefits, can put you in a position where you have very few options.

According to an article on Market Watch:

Before the new rule, when debt collectors pursuing an unpaid debt secured a court-ordered garnishment, the bank often would simply freeze the money in the debtor’s account, whether or not it included federal payments, such as Social Security benefits, said Margot Saunders, an attorney with the National Consumer Law Center.

The easiest thing for a bank to do in this instance is to freeze the entire account, regardless of the source of the deposits. The problem with that type of response, is that it can leave the recipient – oftentimes an elderly person – with no way to pay for basic living expenses.

There are actually rules and exemptions in place, which govern when and how a debt collector can garnish Social Security benefits, but as Saunders points out, “It’s very, very difficult for an elderly person to step through the hoops that are required for exemptions… In the meantime, while they’re going through that process, they have no money.”

Having all of your money frozen at once can lead to financial disaster for someone in a social welfare program.

A New Rule For Banks Ordered To Garnish Social Security Benefits

In an effort to help beneficiaries avoid undue hardship, the Treasury Department will now require banks to verify whether the money in the accounts came from an automatic deposit of federal benefits (including Social Security). If so, the bank is required to leave two months’ worth of federal benefits in the account untouched, so that they can be used to cover living expenses.

However, if the benefits were deposited more than two months in the past, or if they were deposited by check (no matter how recent), then the bank is free to freeze the entire account. The recipient will then have to follow the normal procedure for claiming an exemption in their state.

You may not think that there are a lot of people who are affected by this, but the National Consumer Law Center says otherwise:

NCLC estimates that more than 1 million federal-payment recipients annually had their benefits garnished in a bank account. That estimate is based on “the number of complaints and concerns we get from lawyers around the country,” Saunders said. She said legal-aid lawyers cite such garnishment as among the most significant consumer problems, second only to mortgage-related issues.

This new rule will be a welcome relief to many who were already struggling to make ends meet, and pay off debt at the same time. Whether they be dealing with student loan repayments, credit card debt, or medical debt, they will now be given a little bit of breathing room while they consider their options.

Garnishment Of Your Social Security Benefits By The Government

Keep in mind that this new law only governs court orders directed at banks (after the benefits have been paid). It is still possible to have money withheld from your payments at the Federal level, before you receive a disbursement.

According to the Social Security Administration, here are a few common circumstances in which the Federal government can garnish Social Security benefits:

  • To enforce child support or alimony obligations under Section 459 of the Social Security Act;
  • Internal Revenue Service (IRS) can levy against benefits to collect unpaid Federal taxes according to Section 6334(c) of the Internal Revenue Code;
  • IRS can collect taxes due by levying up to 15 percent of a monthly benefit until the debt is paid;
  • IRS allows beneficiaries to have a portion of their check withheld to satisfy a current year Federal income tax liability according to Section 3402 (P) of the Internal Revenue Code;
  • Other Federal agencies can collect money from benefits to pay a non-tax debt owed to that agency according to the Debt Collection Act of 1996 (Public Law 104-134); and
  • Under the Mandatory Victim Restitution Act, certain civil penalties provide the right to garnish benefits under 18 USC 3613.

This list looks similar to the circumstances in which your tax refund can be garnished. This is why it is so important to take care of all debt before you retire, and never become a cosigner for a loan.

It is much easier to deal with these issues when you have a lot of options, instead of waiting until bankruptcy and debt are all that you have in front of you.

photo by DonkeyHotey

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