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tax refund garnishment

Tax Refund Garnishment: Who Can Take Your Income Tax Refund? » How to File Taxes » Tax Refund Garnishment: Who Can Take Your Income Tax Refund?



Are you checking the IRS website daily for the status of your refund? Here’s some frustrating news: The IRS can seize your refund.

The U.S. Treasury Department allows the Bureau of the Fiscal Service (BFS) – the people who cut your IRS refund check – to keep your refund in cases where you owe money to government agencies.

That means the BFS can use your tax refund to repay:

  • Past-due child or spousal support
  • Defaulted student loans, direct loans, and unpaid fines
  • Unpaid back taxes (federal and state)
  • Overpaid unemployment compensation

The BFS has two different programs that collect debt, depending on the type of debt owed. Federal tax debt is collected by their Federal Payment Levy Program (FPLP). Everything else is handled by the Treasury Offset Program (TOP).

You owe back child or spousal support

If you’ve fallen behind on child or spousal support, your refund can be directly applied toward the past-due amount.

The BFS doesn’t mess around when it comes to back child support, either. In 2021, the Fiscal Service collected $2.71 billion of delinquent child support, according to the agency’s 2023 annual report.

You may be able to arrange installment payments with the Treasury Department. Their debt recovery analysts will need information about your financial situation in order to qualify you for a payment plan.

If you owe more than what your refund covers, TOP may contact your state or local child support enforcement office to continue the collection process.

You defaulted on a student loan

The return of student loan repayment has worried millions of borrowers. In most cases of unpaid federal student loans, the BFS withholds your tax refund and applies it toward repayment.

However, the U.S. Department of Education’s new Fresh Start program is providing relief for borrowers who have defaulted on their student loans – one major form of relief is pausing refund collections. The government can’t withhold your tax return for student loan repayment until at least September 2024. You’ll have to qualify and apply for Fresh Start to receive this benefit.

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.

State fines and your tax refund: In states that collect state income taxes, unpaid traffic tickets, parking fines, and court fees could also come straight out of your state tax refund. Check with your local tax agency or a certified tax professional to find out the most up-to-date regulations for where you live.

You owe back federal or state taxes

Do you still owe money for 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 your refund is seized, however, the state or federal agency must send you notices about your tax debt and offer you a chance to resolve it.

Avoid a withheld refund by paying the debt or arranging a repayment plan 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, as well as provide contact information for the state agency that snagged your refund.

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You collected too much unemployment compensation

If you were paid more in unemployment compensation than you were rightfully owed, the state can arrange to have your tax refund withheld. Sometimes this is a result of not reporting your income correctly, and other times it’s because of fraud.

Your state unemployment agency may have sent notices about the money you owe for an unemployment insurance compensation debt. Any accusations of fraud need to be taken seriously. It could mean you’re the victim of identity theft and need to take action to correct any errors.

Either way, call the IRS to set the record straight. The government may require evidence that you received the correct amount of unemployment pay or you will have to arrange to pay back the difference.

You don’t owe anything but your spouse does

You may not have to sacrifice your entire refund to pay your spouse’s debts.

When you file taxes jointly with your spouse and they owe money for child support or student loans, you can file as an injured spouse. This doesn’t mean you were harmed physically or mentally. By filling out Form 8379, you can protect your share of a joint refund.

You can file this claim with your original or amended joint tax return, or after receiving a notice that your refund will be offset or withheld. The IRS directed filers to “write ‘Injured Spouse’ in the top left corner of the first page of the joint return” if you’re sending the form in at the same time you’re sending in the return.

When in doubt, contact the IRS at (800) 829-1040 to straighten out any misinformation or find out exactly what you owe and why. You can also call the BFS directly at (800) 304-3107. There are repayment options available, so be upfront with both agencies.

Don’t stay in the dark about tax-related issues, especially when it comes to the status of your refund.

Do you owe a lot to the IRS and fear you won’t get caught up? Get in touch to find the best solution.

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