Tax Refund Garnishment: Who Can Take Your Income Tax Refund?

If you have big plans for your federal or state income tax refund, you’re probably checking your bank account or mailbox daily for that IRS direct deposit or check. However, not everyone owed a refund when they file their federal return can expect to have that money in their hands. You may be targeted for tax refund garnishment.

U.S. Treasury Department’s Treasury Offset Program (TOP) allows the Bureau of the Fiscal Service (BFS), which issues IRS tax refunds, to withhold or offset your tax refund in certain cases where you owe money to federal and state agencies through the . Don’t expect to quietly slip through the cracks, either.

In the fiscal year 2018, TOP’s state programs recovered more than $2.9 billion from people who owed delinquent debts.

Private creditors CANNOT use TOP to collect a debt. TOP can only be used by certain government agencies.

You defaulted on a student loan

Borrowing government student loans for college tuition is so easy that it’s tempting to get carried away and borrow as much as you can, without much thought to how you’ll make payments later or how long it will take to pay off your student loans. Nearly 11% of federal student loan borrowers were in default in 2019, according to the Federal Reserve Bank of New York.

In cases of default, the BFS can withhold your tax refund and apply it toward repayment of the defaulted federal student loan. If you haven’t defaulted on a student loan yet but tough times are leading you in that direction, contact your loan holder about a new payment plan, deferment or forbearance.

You owe back child or spousal support

If you’ve fallen behind on child or spousal support, it’s probably not a good idea to spend your anticipated refund before you have that money in your hands. That’s because the BFS can withhold all or part of your refund and apply it toward past-due child or spousal support.

The BFS doesn’t mess around when it comes to back child support, either. In fiscal year 2017, the Fiscal Service collected $1.8 billion of delinquent child support, according to the agency’s 2017 annual report. You may be able to pay your debt with installment payments arranged through a debt recovery analyst with the U.S. Department of the Treasury by providing information about your financial situation.

You owe unemployment compensation debt

Did you fail to respond to notices sent by your state unemployment agency about money you owe for an unemployment insurance compensation debt? If you breathed a sigh of relief when those letters stopped arriving in the mail, you may be in for a surprise when the BFS sends a notice informing you that it applied your federal tax refund to that debt you owed the state.

You owe back federal or state taxes

Do you still owe money for last year or another year’s federal or state taxes? If so, the BFS can reduce your refund or apply all of it to the amount owed for back taxes. Before things get to this point, however, the state or federal agency must send notices about your debt and offer you a chance to resolve it.

To avoid having a tax refund seized, try to work things out and pay the debt before a state or federal agency reports it to the BFS. Once you’re reported, the BFS will add your name to its database and you can kiss tax refunds goodbye until your debt is eliminated or caught up.

The Bureau of the Fiscal Service will send a tax refund garnishment notice that will list the refund and offset amounts and provide contact information for the state agency that snagged your refund.