What Debts Can Be Taken From Your Federal Taxes?

Debts you owe to the government can deplete your tax refund.

Form 1040 Tax Forms image by Viola Joyner from Fotolia.com

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.

Federal Taxes

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.

Child Support

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.

State Taxes

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.

Unemployment Compensation

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.