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When you have delinquent taxes or certain other types of debt and you’re owed a tax refund, you may find that the government has taken some or all of your tax refund.
The Treasury Offset Program allows the Department of the Treasury to withhold money from tax refunds and Social Security benefits to pay a debt. Sometimes, this is referred to as an administrative offset or simply as an offset. It typically occurs when you owe money to federal or state agencies and haven’t made on-time payments.
If you’re behind on payments to a state or federal agency, the agency will eventually send your name to the Treasury Offset Program (TOP). The Bureau of the Fiscal Service — the agency responsible for issuing tax refunds from the Internal Revenue Service — is authorized by Congress to reduce your refund to help satisfy the debt.
When you file your tax return, the Bureau of the Fiscal Service (BFS) will search the TOP database to see if your taxpayer identification information shows you have outstanding debt. If there’s no match, you’ll receive your full income tax refund.
But if the database reveals that you owe money, some or all of your refund could be withheld. You’ll receive a letter from the BFS that includes:
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The amount of the original refund
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How much was offset
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The agency that will receive the payment
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The contact information for that agency
A refund offset is one of several consequences that could result from delinquent payments to the government. Here are some of the ways the government can claw back its money:
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Refund offset: When you file your tax return with the Internal Revenue Service (IRS), the Department of Treasury’s Bureau of Fiscal Service can reduce your tax refund by the amount you owe to satisfy your debt.
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Garnishment: The IRS can garnish your wages to satisfy a tax debt. This is also known as a wage levy.
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Seizure: The IRS can take the money in your bank account if you’re subject to a tax levy. It can also seize and sell assets like real estate and vehicles through a tax levy or place a tax lien against such assets.
Read more: Here are 7 free tax filing options
Here are some common reasons the IRS could garnish your federal income tax refund:
The IRS can seize your refund if you owe state income tax or federal taxes or if you owe non-tax money to the federal government.
Note that if you can’t pay your taxes and you’re enrolled in an IRS payment plan, the terms of your agreement state that you won’t get a refund until you’ve paid your bill in full. But if you’re making installment payments as agreed, you’ll avoid more severe consequences, like a tax levy.
Your refund can be garnished if you owe money to your state’s unemployment agency. Individual taxpayers could face an offset if they received an overpayment of unemployment benefits due to fraud or failure to report income.
Typically, the IRS can offset your refund if you have delinquent federal student loans — but taxpayers will get a reprieve this tax season.
The Biden administration created a temporary on-ramp program to ease borrowers back into making federal student loan payments that we’ll discuss in greater detail shortly. The bottom line is, your 2023 tax refund won’t be seized for delinquent federal student loan debt, but you’ll need to take action before Sept. 30, 2024 to avoid future offsets.
Read more: Will I be taxed on student loan forgiveness?
State agencies work with the federal government to submit information to the U.S. Treasury about parents who are behind on child support. If you have unpaid child support, your information will usually be submitted to TOP if:
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The custodial parent receives public assistance, and you owe more than $150, OR
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The custodial parent doesn’t receive public assistance, and you owe more than $500.
Tax refunds that are offset due to unpaid child support are used to repay any money owed to a state child support agency first. Any intercepted funds left over go to the child’s custodial parent.
If you’re married and file a joint tax return, you could find that your tax refund was garnished due to debts your spouse owes. In this situation, you can apply for injured spouse relief through the IRS to receive your portion of the refund, provided you weren’t responsible for the debt. You’ll need to submit IRS Form 8379, Injured Spouse Allocation.
You can still get your 2023 tax refund (for tax returns due April 15, 2024) if you’re behind on payments for most federal student loans. Though the 37-month COVID-19 payment pause ended Oct. 1, 2023, the U.S. Department of Education will delay tax refund offsets until at least September 2024.
If you’ve defaulted on student loans, though, you’ll need to enroll in the Fresh Start Program before Sept. 30, 2024, to avoid future refund offsets. Borrowers who use the program to get out of default will have their loan status restored to “in repayment” status and will have the default removed from their credit reports. To apply, contact your student loan servicer.
Only the federal government can offset a tax refund, and it will only do so if you owe a state or federal government agency money. Private creditors, like credit card issuers or a bank that gave you a personal loan, can’t garnish a tax refund. Note that you won’t have your tax refund seized for delinquent private student loans, either.
Even if a creditor can’t garnish your tax refund, there are other serious consequences that can occur if you don’t repay debt, including negative information on your credit report. Creditors can also sue you for money you owe.
Yes. A government agency must notify you in writing at least 60 days before sending the debt to TOP. The letter must include the type of debt and amount owed, the referring agency, and the steps you can take to resolve the matter, including paying the debt, entering into a payment program, or disputing the amount owed.
To dispute an offset, contact the agency listed on the offset notice you receive. You should only contact the IRS if the refund amount on your tax return is different from the amount shown on your offset notice.
If you’re married and file a joint return, the IRS could seize your refund if your spouse owes back taxes, owes money to a government agency, or has past-due child support. If you’re not responsible for the debt, you can get your half of the refund you were otherwise owed if you file Form 8379.