Who Can and Can't Take Your Tax Refund

Are you expecting a tax refund this year? When you file federal and state taxes, your past debts may make your money subject to an offset or garnishment, which could lead to your refund being offset. These include past IRS debts and too many missed child support payments, but what other debts may cause you to lose your IRS tax refund? Find out below.

The most common loans or debts that can result in an offset are:

Most debts must be delinquent or defaulted on to be seized. If this does happen, you may be able to get your tax refund offset back under certain circumstances. If your spouse has debt and you file as married filing jointly, your refund will be subject to offset unless you file as an innocent spouse or injured spouse; see how to do IT on eFile.com:

You can also fill out and mail these forms on your own - search for free IRS and state tax forms here.

Tax Tip: If your spouse is solely responsible for the debt, request your part of your joint refund via Form 8379; if your refund went to joint debt, but you believe only your spouse or former spouse should be responsible for this debt,, file Form 8857. You can eFileIT both of these forms on eFile.com.

If you are facing financial hardship or debt (perhaps due to the COVID-19 Pandemic), consider using eFile.com to prepare and e-file your Taxes. We offer competitive pricing compared to H&R Block® and TurboTax® to help save you money while still guaranteeing the highest refund legally possible. Additionally, you may be able to file taxes online for free, depending on your specific tax situation. eFile will up or downgrade you, so you always get the lowest price guaranteed.

See also: How much do I have to make to file taxes?

If you are ready and able to pay your past-due debt, this is the best way to avoid your refund being offset or reduced. Visit Pay.gov using the link here to pay your debt online via bank account (ACH), debit card, or even from your PayPal account: Pay Debts Now.

Tax Refund
Offset Program

When you file your taxes and find yourself with a refund, this money may be subject to the above debts or loans. See details on canceled debt and this IRS publication on debts and foreclosures. If the IRS or the Bureau of Fiscal Service (BFS) offsets your refund, they will issue you an official IRS notice or letter with details. This letter will also have contact information if you disagree with the changes - BFS will also send you a notice.

The letter will summarize the original refund amount, the offset or adjusted refund amount, plus information about the agency receiving the payment (name, address, contact, etc.). In addition to the federal tax refund offset details, the notice may have administrative offset information, passport denial, other upcoming actions by the agency collecting the debt, plus details on how to challenge the debt.

If you have an eFile account, you can contact us for guidance regarding your recent refund if it was offset for any reason. For general questions on your refund offset, contact the IRS hotline at 1-800-829-1040 or the number on the letter you received. See tips on how and when to contact the IRS.

Loans, Debts that Can Take Your Tax Refund

The Treasury Offset Program or TOP will take away your refund up to the amount of debts you owe. If you owe $5,000 and are due to receive a $1,000 refund after filing your taxes, this will go toward your debt. If you owe $1,000 and get a $3,000 refund, then $1,000 will go to your debt, and $2,000 will go to you. Generally, most agencies will refer your debt to the Treasury Offset program if it becomes more than 90 days delinquent. Between the agency, the Bureau of Fiscal Service (BFS), and the TOP, you should receive multiple notices regarding your debt before it becomes subject to an offset.

If you believe your refund may be subject to offset, call the IRS offset number at 1-800-304-3107 to get information on your debt situation. This will inform you if you have any offsets pending and give you an idea of what may happen to your next tax refund.

Related: Why was my refund smaller than what I filed for?

If you have outstanding debts with certain government and non-government entities, your federal and/or state refund may be used to pay this off when you file your taxes. How do you know what types of debt may be taken? The table below shows which types of debt can be offset when you file.

Federal Non-Tax Debt
When you owe back taxes for a previous year or years, this is not technically considered an offset, but the IRS will immediately reduce or take your refund in order to pay back taxes. The Treasury Offset Program can take your refund for other non-tax debts to pay this debt. The IRS will have been in communication with you via letter in order to alert you of your debts, the intent to offset, and once more when the offset occurs - see details on IRS communication letters. An offset is not the same as an IRS audit. If you have the funds now, pay your IRS taxes online via debit/credit card, direct bank withdrawal, and more. Or, see how to set up a payment plan with the IRS. You can also pay other debts via Pay.gov. Other federal agency non-tax debts may also make your refund subject to offset, including student debt (see below).
State Debt
If you owe state taxes or other state debts, such as unemployment compensation debts, then the state reserves the right to intercept your state and/or federal tax refund before it hits your bank account. This can happen if the state has filed a claim on your debt that is at least 180 days delinquent but less than ten years old. Like most debts, you would be sent a pre-offset notice with details of the debt and intent to offset. If you owe back taxes to the state, file this return as soon as possible and pay with your return or pay state taxes directly online. You may also see if your state offers installment payments in order to avoid or at least reduce garnishment. Additionally, your refund can be offset if you collected more unemployment income than you were entitled to, whether due to an inaccurate earnings report or fraud.
Student Loans
Your tax refunds (federal and state) can only be offset to pay past due student loans, known as the student loan tax offset if you have defaulted on your loan. To default on a student loan, you would have to have failed to make any payments on your federal student loans for 270 consecutive days or nine months. When this happens, your entire loan is immediately due, and your loan provider can take this money from your wages and federal payments, like tax refunds. A notice of intent to offset will be sent to you with a 65-day period; you can stop the offset by entering repayment during or after the 65-day period by entering into a rehabilitation agreement where you make the first five payments of the nine required. Note: due to the COVID-19 Pandemic, federal student loans were put into forbearance, which has been extended multiple times through August 31, 2022. During this period, the 2020 and 2021 Tax Refunds claimed were not subject to be offset for defaulted student loans. This is expected to end once this forbearance is expired, so your refund may be able to be taken if your student loan has defaulted. Simply put, having student loan debt does not mean your refund will be taken, but having a defaulted loan does mean it will be taken. What types of loans are subject to offset?
Child Support
Part or all of your refund can be taken if you owe child support to a current or former spouse; both federal and state governments have the right to intercept your funds to pay for the child's support. If you have child support arrears, then state child support agencies, the Office of Child Support Enforcement (OCSE), and the Department of the Treasury record both your and the child's information to issue a notice alerting you that your past-due payments are subject to offset called a pre-offset notice. You will then receive a notice that your refund was intercepted with additional contact information and instructions.
Spousal Support
If you owe spousal support or alimony that has gone delinquent and it is part of a child support order, this can also be offset. See the details above as they relate to the child support section.
The following less common loans may also be subject to offset:
  • Small Business Administration or SBA
  • Department of Housing and Urban Development or HUD.

If you file for and claim bankruptcy, you may be exempt from certain offsets or garnishments. If your refund is smaller than expected, the IRS will issue you a notice explaining any adjustments, including offsets and garnishments. In most cases, if your refund is offset and you have a remaining balance due to you, the turnaround time for this is 2-3 weeks for it to be processed and sent to you.

Important: Rather than waiting on your tax refund, increase your paycheck now by filing a W-4 with your employer. You will get to keep more of your money with each paycheck, and that money is not subject to be seized by federal debt collectors.

Your Tax Refund Cannot be Garnished for Certain Debts

If you have outstanding debt from other sources, such as a credit card, this is not subject to offset by the IRS. If any collection agency threatens to take or seize your federal and state tax refunds for these debts, this is a lie: private lenders cannot legally directly offset your tax refund. See how to identify fake emails and phone calls.

In the table below, find examples of debts that are not subject to IRS and state garnishment.

Credit Card Debt
If you owe a large amount of credit card debt, your federal and state tax refunds are not subject to garnishment. Pay off any credit card debt to the best of your ability to avoid any lawsuits and pay off your accrued interest.
Medical Debt
Any hospital, dental, or other medical bills may leave you with immense debt. No matter how big that debt gets, the debt collectors cannot work with TOP to seize your IRS or state refund to pay this off.
Car Loan Debt
Deb collectors can take various avenues to collect this money if you owe a large sum of money or default on a car loan. However, they cannot seize your tax refund from the IRS or state tax agency.
Bank Loan Debt
Whether it be a credit building loan or a personal loan, the bank may come after you for this money if you remain unable to pay it back for any reason. However, they cannot claim your tax refunds in order to get their money back through you.

Pay off these debts as soon as possible to the best of your ability. Save money on rising interest by paying these down; file your taxes online and claim your tax refund so you can use this money to pay off debts.

Recommended: Adjust your W-4 now to claim more of your money during the year. In most cases, a tax refund is made up of money you could be putting in your pocket during the year. Keep this money now and pay off your credit card or medical debt during the year: start the eFile.com Taxometer.

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