We received an Illinois tax levy requiring us to freeze a customer’s funds. This customer recently received social security funds for her minor daughter due to the death of the father. Are we prohibited from freezing these funds, since they must be used for the benefit of the minor child?

Yes, we believe you would be prohibited from freezing social security funds pursuant to an Illinois tax levy.

The Social Security Act prohibits social security benefit payments from being “subject to execution, levy, attachment, garnishment, or other legal process.” Additionally, the regulations addressing the garnishment of accounts containing federal benefit payments (such as social security benefits) require financial institutions to apply a two-month “lookback period” to identify funds protected from garnishment. The lookback period is triggered by the receipt of a “garnishment order,” defined as “a writ, order, notice, summons, judgment, levy or similar written instruction issued by a court, a State or State agency, a municipality or municipal corporation, or a State child support enforcement agency.” Consequently, your bank must apply a two-month lookback period and protect any benefit payments deposited during that period from the state tax levy.

For resources related to our guidance, please see:

Social Security Act, 42 USC 407(a) (“The right of any person to any future payment under this subchapter shall not be transferable or assignable, at law or in equity, and none of the moneys paid or payable or rights existing under this subchapter shall be subject to execution, levy, attachment, garnishment, or other legal process, or to the operation of any bankruptcy or insolvency law.”)

31 CFR 212.2(b) (“This part applies to . . . Federal benefit payments protected from garnishment pursuant to the following authorities: (1) SSA benefit payments protected under 42 U.S.C. 407 and 42 U.S.C. 1383(d)(1) . . .”)

31 CFR 212.3 (“Lookback period means the two month period that begins on the date preceding the date of account review and ends on the corresponding date of the month two months earlier, or on the last date of the month two months earlier if the corresponding date does not exist.”)

31 CFR 212.5(c) (“Benefit payment deposited during lookback period. If the account review shows that a benefit agency deposited a benefit payment into the account during the lookback period, then the financial institution shall follow the procedures in § 212.6.”)

31 CFR 212.6 (“The following provisions apply if an account review shows that a benefit agency deposited a benefit payment into an account during the lookback period.

(a) Protected amount. The financial institution shall immediately calculate and establish the protected amount for an account. The financial institution shall ensure that the account holder has full and customary access to the protected amount, which the financial institution shall not freeze in response to the garnishment order. An account holder shall have no requirement to assert any right of garnishment exemption prior to accessing the protected amount in the account.

(b) Separate protected amounts. The financial institution shall calculate and establish the protected amount separately for each account in the name of an account holder, consistent with the requirements in § 212.5(f) to conduct distinct account reviews.

(c) No challenge of protection. A protected amount calculated and established by a financial institution pursuant to this section shall be conclusively considered to be exempt from garnishment under law.

(d) Funds in excess of the protected amount. For any funds in an account in excess of the protected amount, the financial institution shall follow its otherwise customary procedures for handling garnishment orders, including the freezing of funds, but consistent with paragraphs (f) and (g) of this section.”)

31 CFR 212.5(a)(1) (“Timing of account review. When served a garnishment order issued against a debtor, a financial institution shall perform an account review: (1) No later than two business days following receipt of (A) the order, and (B) sufficient information from the creditor that initiated the order to determine whether the debtor is an account holder, if such information is not already included in the order . . .”)

31 CFR 212.3 (“Garnishment order or order means a writ, order, notice, summons, judgment, levy or similar written instruction issued by a court, a State or State agency, a municipality or municipal corporation, or a State child support enforcement agency, including a lien arising by operation of law for overdue child support or an order to freeze the assets in an account, to effect a garnishment against a debtor.”)