What Debts Can Be Taken From Your Federal Taxes?
If you're expecting a big tax refund, don't count on it -- and if you owe money to the state or federal government, your refund may be smaller than you think. The federal Treasury Offset Program gives the U.S. Treasury Department the right to withhold your federal tax refund to satisfy certain types of debts you may have incurred. While a refund offset can't be initiated to satisfy debt collectors or creditors who've filed a judgment against you in court, they can be implemented for a number of other debts, from child support to student loans.
The IRS pays itself first, so federal tax debts take precedence over other types of debts when it comes to offsetting your tax refund. If you failed to pay taxes due in previous years or you owe money to the IRS for any reason, the agency will partially or fully offset your refund to collect these funds.
Non-tax Federal Debts
If you are up-to-date on your federal taxes, but you owe money to any other federal agency, the IRS can take money from your tax refund to satisfy these debts. Federal agency non-tax debts include past due or defaulted student loan payments, payments on HUD loans and any fines, penalties or fees due to any federal department. If you've accepted overpayments or fraudulent payments on Social Security or disability benefits or other federal insurance programs, these debts may also cause your refund amount to be reduced.
Any past-due child support payments may be taken out of your tax refund. Typically, the federal tax offset programs kicks in if you owe more than $150 in state-assigned tax support payments or more than $500 in child support payments to an individual, such as your child's custodial parent. If the amount of the past due child support exceeds your refund, the IRS may continue to garnish your refund for multiple years until the debt has been satisfied.
If you owe state income taxes to any state, whether you still live there or not, the IRS can offset your refund to take care of these debts. The government can claim this money even if you have a payment plan in place with the state that you owe money to.
The IRS is also authorized to deduct funds from your tax refund check to cover fraudulent or unpaid unemployment compensation. For example, if you once owned a business and failed to pay your unemployment insurance as required by the law, the government may withhold your refund to cover these missed or late payments. Even if you were never an employer, but you accepted fraudulent or double worker's compensation payments as an employee or former employee, your refund may be adjusted to cover these payments.
- Internal Revenue Service: Topic 203 - Refund Offsets: For Unpaid Child Support, And Certain Federal, State, and Unemployment Compensation Debts
- Intuit: Who Can Garnish an Income Tax Refund?
- Cornell University Legal Information Institute: Offset of Tax Refund Payments to Collect Past-Due, Legally Enforceable Nontax Debt
- Michigan Supreme Court: Tax Refund Offset Program
- U.S. Financial Management Service: Debt Management Services
- Connecticut Department of Revenue Services: General Information about the Treasury Offset Program
Emily Beach works in the commercial construction industry in Maryland. She received her LEED accreditation from the U.S. Green Building Council in 2008 and is in the process of working towards an Architectural Hardware Consultant certification from the Door and Hardware Institute. She received a bachelor's degree in economics and management from Goucher College in Towson, Maryland.