TN 26 (09-06)
GN 02201.043 Collection of Title II/Title XVI Overpayments by Federal Salary Offset (FSO)
A. Policy - general
Section 310001(z)(2) of the Debt Collection Improvement Act (DCIA) of 1996 (Public Law 104-134), amended section 204(f) of the Social Security Act to allow SSA to use Federal Salary Offset (FSO) to collect delinquent Title II overpayment debts under 5 U.S.C. 5514. Section 203 of the Foster Care Independence Act of 1999 (Public Law 106-169) authorized the use of FSO to collect Title XVI delinquent overpayment debts owed to SSA.
2. Description of FSO
FSO is the process whereby the salary paying agency withholds amounts each pay day from an employee of the Federal government who owes a debt to a creditor agency, and those amounts are paid to the agency to reduce the overpayment of the debtor.
The Federal employer may withhold up to 15% of the debtor’s disposable pay. Disposable pay is the part of the worker’s total compensation from an employer remaining after deduction of health insurance premiums, and any other amounts required by law to be withheld. Amounts required by law to be withheld include Social Security contributions and other withholding taxes but do not include amounts withheld under court order.
3. Criteria for FSO selection
SSA uses an automated system, External Collection Operation (ECO), to select, control, and monitor Title II and Title XVI overpayment cases for FSO, Administrative Wage Garnishment (AWG), Treasury Offset Program (TOP), and credit bureau reporting. The system determines if the debtor is eligible for FSO, as well as the other programs.
In order for a debt to be selected for FSO, all of the following conditions must apply:
The debtor is alive, and
The debtor is not entitled to Title II or Title XVI benefits or Medicare based on disability, and
The debtor is not active in the Ticket to Work and Self-Sufficiency Program (active is denoted as Code I on the Disability Control File), and
The debtor’s Social Security Number is available, and
The debt is $100 dollars or more, and
The debt is past due, and
The debt is legally enforceable (see GN 02201.030C), and
The debt was established after age 18, and
No installment payment arrangements exist with SSA, or if one has been made, the debtor failed to make payment for two consecutive months, and
No waiver or appeal is pending, and
Cross Program Recovery is not available.
4. Reasons for nonselection
a. Work incentives
SSA’s policy is to exclude individuals from FSO selection:
while they are participating in the Ticket to Work and Self-Sufficiency Program and have tickets in use, or
while they are in a period of extended Medicare eligibility, or
while their Title II disability insurance benefits are stopped during the re-entitlement period.
Since one of SSA's main objectives is to increase employment of people with disabilities, SSA excludes people with the preceding work incentives from the FSO program.
b. Installment agreements
SSA's regulations governing FSO do not allow the selection of a case for FSO when the person is repaying the debt by regular installments. In that case, we do not consider the person to be delinquent in repaying the debt.
Once SSA starts FSO, SSA will not stop collecting by FSO when the person offers to start or resume paying us by regular installments. We will accept the additional installment payments to reduce the debt balance after FSO starts, but we will not stop FSO.
c. Cross program recovery
SSA's regulations governing FSO do not allow the use of that collection tool to recover a debt when SSA is recovering by cross program recovery. If the debtor is legitimately selected for FSO and subsequently is selected for cross program recovery, FSO will automatically stop.
5. SSA’s decision to use FSO not an initial determination
SSA's regulations at 20 CFR 404.903 and 416.1403 cover the determination to refer overpayments to the Department of the Treasury for collection by offset against Federal payments in the list of administrative actions that are not initial determinations. Federal payments include Federal salary payments and, therefore, the determination to use FSO is not an initial determination. Consequently, appeal rights that apply to initial determinations under Title II and Title XVI of the Act do not apply to SSA's decision to use FSO to collect debts.
Of course, individuals may still attempt to request reconsideration of the overpayment determination. Those requests will be handled according to existing procedure. Since cases selected for FSO are by definition beyond the 60-day period for requesting reconsideration of the debt, the person must prove good cause for late filing. See GN 02201.044B.9. and SI 02220.019B.7. for instructions on how to handle requests for reconsideration.
6. FSO due process rights
a. Right to request review of the fact or amount of the debt
Under 5 USC 5514, before we begin to collect a debt by FSO, we must provide the debtor with the opportunity for a review concerning the existence and amount of the debt and the terms of the repayment schedule stated in the notice. The review will be conducted in the Office of the Chief Administrative Law Judge (OCALJ).
In the FSO notice (see GN 02201.043B.4.), SSA tells the individual that he or she has the right to request review of the debt. This review of the debt is very limited in its scope. There must be evidence in the record or furnished by the debtor (e.g., the debt was paid in full or recovery was waived) to show that the debtor does not owe the debt or does not owe it in the amount claimed by SSA or SSA is precluded from collecting it (e.g., the debt is subject to a bankruptcy petition or discharge).
NOTE: If evidence as described does not exist and the debtor still wants to request a review, he or she must provide a detailed written explanation of the reason the overpayment is not owed, or the debt balance stated in the notice is incorrect, or SSA is precluded from collecting it.
If the debtor requests this review within 30 days of the date of the FSO notice, SSA will not proceed with FSO until the review has been completed. See GN 02201.044B.4. and SI 02220.019B.4. for specific information about how to process a request for review.
If the debtor does not notify us of his intent to request a review and give us evidence within 30 calendar days from the date of the notice regarding FSO, the review will occur, but we may take the FSO action described in the notice without further delay. See GN 02201.043B.4. for notice language.
The request must be written and signed, must explain with reasonable specificity the facts and the evidence that support the debtor’s position, and must identify any witnesses.
IMPORTANT: The FSO request for review is not the same as a request for reconsideration of the fact/amount of the overpayment determination, and must not be treated as such.
In fact, SSA's findings on the request for review constitute the final action on the matter. No additional appeal rights exist. Consequently, do not accept an SSA-561 for these requests.
b. Right to request lower offset amount due to hardship
A debtor whose wages are subject to FSO may, at any time, request a review of the offset amount based on financial hardship. The request can be made either orally or in writing. The decision as to the amount of withholding is not an initial determination subject to appeal rights. See GN 02201.044B.5. and SI 02220.019B.5. for instructions on how to process requests for reduction in FSO amounts due to financial hardship.
SSA will not reduce the FSO amount if the overpayment resulted from fraud, an intentional false statement or willful concealment of, or failure to furnish, material information. (See GN 02201.050.)
NOTE: Treasury does not allow collection of more than 15% of a debtor’s disposable pay by offset; therefore, SSA is unable to approve requests for a higher rate of withholding.
c. Right to inspect and copy records related to the debt
The individual has the right to inspect and copy SSA's records related to the debtor's overpayment. See GN 02201.044B.3. for instructions.
7. FSO, AWG, TOP and credit bureau reporting
When applicable, SSA uses FSO at the same time as AWG, TOP and credit bureau reporting. The receipt of FSO payments does not preclude SSA from using those other debt collection remedies. The system automatically updates the balance of the debt being collected under FSO, AWG and TOP, thus preventing excess collections.
B. Process – initiating FSO
1. ECO system selects debtors
SSA's FSO program is designed to be as fully automated as possible, though some manual actions are necessary and are described in the FSO instructions in GN 02201.044. The selection of debtors subject to FSO is an automated process. By design, there is no capability to initiate FSO manually on a case-by-case basis.
Using the FSO selection criteria listed in GN 02201.043A.3., the ECO system automatically selects debtors who meet the criteria for FSO. Since the selection process runs at regular intervals, it ensures a maximum number of selections for FSO, AWG, TOP and credit bureau reporting. If a debtor does not meet the selection criteria at a particular selection run, but meets it later, the system automatically selects the person at that time.
NOTE: When the debtor owes both Title II and Title XVI debts and both are eligible for FSO, the debt with the earliest delinquency start date will be selected for recovery first.
2. SSA notifies debtors
Prior to notifying debtors about FSO, SSA uses the same automated process as described in GN 02201.030A.3., (TRO Pre-Offset Notice), to notify debtors about the potential collection action. Once a month, SSA prints and mails the 60-day notices. The notices contain information about all applicable ECO debt collection tools SSA plans to use, except it does not explicitly mention FSO. In addition, it provides the standard language about repaying the debt in a lump sum or by an installment agreement and the right to request waiver.
If the 60-day notice is returned as undeliverable after FSO has started, SSA stops the process until we get a current address and succeed in delivering the 60-day notice. Unless the notice is returned as undeliverable, assume that it was delivered to the person at the correct address.
See GN 02201.030F.2. for instructions on handling allegations of nonreceipt of the 60-day notice.
If the notice is returned as undeliverable after FSO has been started, see GN 02201.044D.2. or SI 02220.019D.2. for processing instructions.
NOTE: All ECO notices sent November 2015 or later will be stored in ORS. For all ECO notices sent prior to November 2015 you can view the ECO master query. For additional information on the ECO master query, see MSOM DMS 014.007.
3. Match file received from Bureau of the Fiscal Service (BFS)
Once the debtor is active at BFS, formerly known as the Financial Management Service (FMS), and the additional FSO criteria (GN 02201.043A.3.) are met, ECO will then screen the debtor's own SSN against the Potential Salary Match file provided bi-weekly by BFS. This file includes SSA debtors matched against the salary extract files from the Salary Paying Agencies (SPAs). If there is a match and the debtor meets all criteria for FSO, ECO will produce an FSO 30-day notice to the debtor providing the specific due process rights associated with FSO.
4. SSA sends FSO 30-day notice
The 30-day notice provides the following information specific to FSO:
The law allows SSA to collect the overpayment from the person's pay;
SSA may order the Department of the Treasury to notify the salary paying agency to offset or reduce the debtor’s disposable pay by 15% each pay day;
The disposable pay is the amount left after deduction for health insurance premiums and deductions required by law, such as taxes;
The debtor may request review of the debt; and
The debtor has the right to ask us to lower the amount we would collect from their Federal pay and we will lower the amount if the person shows it would cause hardship (see GN 02201.044B.5.).
The notice also explains that FSO will begin 30 days after the date of the notice unless the debtor contacts the agency to pay the balance in full, makes an installment payment agreement, or request review or waiver of collection.
If the FSO notice is returned as undeliverable, SSA does not begin FSO unless and until we get a current address and succeed in delivering the 30-day notice. Unless the notice is returned as undeliverable, assume that it was delivered to the person at the correct address. Follow the instructions in GN 02201.030F.2. when handling allegations of nonreceipt of the 30-day notice.
If the FSO 30-day notice is returned as undeliverable after FSO has been started, the debt is inactivated until a valid address is received. See GN 02201.044D.2.c. or SI 02220.019D.2.c. for processing instructions.
5. FSO bypass code removed
The FSO bypass code prevents the case from being selected for offset.
If after the 30 days no response is received and the debtor still meets all criteria for FSO, ECO will send a record to BFS notifying them to remove the by-pass FSO indicator, which will activate offset.
6. BFS/Department of the Treasury sends 30-day notice
Once the FSO Bypass is removed, BFS will send a generic notice to the debtor stating the following information:
The creditor agency previously sent a detailed notice explaining the type and amount of debt owed and providing full due process rights;
The creditor agency’s intention to collect their delinquent debt by means of offsetting up to 15% of their disposable Federal salary payment each pay day;
The deductions will begin in 30 days and will continue until the total amount plus any interest, penalties, and administrative costs have been collected or until collection activity has been stopped by the creditor agency; and
The only way to stop offset from occurring is to contact the creditor agency within the 30-day time period.
The letter also contains the name and contact information of the creditor agency.
C. Process – controlling FSO update actions
SSA provides weekly automated updates to Treasury. When FSO is active, a variety of debt and debtor-related events requiring FSO update can occur. For example, the debtor can request waiver of collection, thus requiring FSO to become inactive in ECO unless and until SSA denies the waiver request. To the maximum extent possible, the ECO system automatically controls and monitors the need for FSO updates.
The ECO system reacts to overpayment-related codes input to the MBR/ROAR, SSR and within ECO to determine the appropriate update action. The Collection Query that is attached to the MBR and SSR identifies activity and information pertaining to the debt and debtor. (See MSOM DMS 014.007 for a description of the Collection Query.)
1. Inactivate FSO
The ECO system automatically inactivates FSO when the debtor:
requests reconsideration of the overpayment determination;
requests review of the debt;
alleges hardship (and development of income/expenses is necessary);
goes back into current pay;
becomes subject to mandatory cross program recovery;
files for bankruptcy or the debt is discharged in bankruptcy;
pays debt in full;
pays compromise amount;
goes back into current pay;
incurs a new debt that is in due process status;
participates in a Ticket to Work and Self-Sufficiency Program; and
becomes subject to a higher priority offset, such as child support or tax debt.
2. Reduce FSO amount
SSA reduces the offset amount when the debtor demonstrates hardship. The ECO system sends a record to BFS to annotate the lower offset amount. See GN 02201.044B.5. for information on debtor requests for hardship.
This section contains references for additional information on FSO.
1. SSA regulations
20 CFR 422.301–422.317 – See PolicyNet and select “SSA Regulations.”
2. POMS and MSOM
GN 02201.044 – Debtor Reactions to Collection of Title II Overpayments by Federal Salary Offset (FSO)
SI 02220.019 – Debtor Reactions to Collection of Title XVI Overpayments by Federal Salary Offset (FSO)
SM 00610.001 – Overview of the Recovery of Overpayments, Accounting and Reporting (ROAR) System
MSOM DMS 014.001 – External Collection Operation
SM 00610.040 – External Collection Operation (ECO)