Instead of receiving the nice tax refund check you’ve been expecting, you get a notice in the mail. It says your tax refund has been offset. What does this mean?
A refund offset means the government has determined that you owe a debt and has applied your tax refund towards this debt. Tax refunds can offset for many types of debts—not just federal tax debts—through the Treasury Offset Program (TOP).
Refund Offsets for Federal Tax Debt
If you owe the IRS money, they will seize your tax refund check. There’s no way around this other than to resolve your tax problems.
Even while you are making payments as part of an installment agreement, the IRS may continue to seize your tax refunds and apply them towards your outstanding balance. You could adjust your withholding amounts on your W-4 or reduce your estimated tax payments, which would reduce the amount of your refund.
However, if you reduce these amounts too much, you could face underpayment penalties.
Tax Refund Offsets for Other Debts
Even if you don’t owe the IRS money, your federal tax refund check can still be offset through the TOP. Your refund may be seized to pay the following types of debts:
- State income tax debt
- Federal non-tax debt (such as delinquent federal student loans)
- Past-due child support
- Certain unemployment compensation debts. You should receive a notice that tells you which agency is getting the money from your tax refund check. If you don’t agree with the refund offset or want to work out a payment arrangement, you’ll have to contact the agency listed on the notice. The IRS won’t be able to help you if your debt is not federal tax debt.
Refund Offset for Your Spouse’s Debt
If you file a joint tax return, your full refund can be seized when your spouse owes any of the debts listed above. However, you generally aren’t legally responsible for debts your spouse incurred prior to marriage, so you can request relief from part of the refund offset.
You can claim an injured spouse allocation to get the portion of the refund you are entitled to receive. You can either file an injured spouse allocation along with your tax return or after you receive notice that your refund has been offset.
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