Can Collections Take Your Tax Refund?
Learn if your tax refund can be seized for past-due obligations. Understand the different collection rules for government and private debts, and your rights as a joint filer.
A tax refund represents an overpayment of taxes to the government. However, under federal law, this refund can be intercepted to satisfy certain outstanding debts before it reaches your bank account. This process, known as an offset, is not available to all types of creditors and is governed by a distinct set of rules.
The Treasury Offset Program
The primary mechanism the federal government uses to seize tax refunds is the Treasury Offset Program (TOP), administered by the Bureau of the Fiscal Service (BFS). The TOP is an automated program that uses a taxpayer’s identification number to match individuals who owe delinquent debts to government agencies with federal payments, such as tax refunds. When a match is found, the program intercepts the payment to cover the outstanding debt.
Congress has authorized the TOP to collect several categories of debt. These include:
- Past-due federal tax liabilities
- Delinquent federal student loans
- Past-due child support payments enforced by a state agency
- State income tax obligations
- Certain unemployment compensation debts owed to a state, particularly those resulting from fraud
Federal agencies are required to refer eligible debts to TOP if they are more than 120 days delinquent and meet a minimum threshold of $25. Past-due federal taxes are paid first before any other agency can claim a portion of the refund.
The Offset Notification and Process
The process begins before tax season when the creditor agency sends a written “Notice of Intent to Offset” at least 60 days before submitting the debt to the TOP. This notice details the debt and explains the taxpayer’s rights, including how to dispute it or arrange payment.
If the debt remains unresolved, the agency submits it to the BFS. Once the IRS approves a refund, the BFS intercepts it, pays the creditor, and sends a final “Notice of Offset” to the taxpayer. This notice states the original refund amount, the amount offset, and the contact information for the agency that received the payment.
Any portion of the tax refund remaining after the debt is paid is issued to the taxpayer. If a taxpayer disagrees with the offset, they must contact the creditor agency listed on the notice, not the IRS. The IRS’s role is limited to confirming the original refund amount.
Private Creditor Collections
Private creditors, such as credit card companies or medical providers, cannot use the Treasury Offset Program. Federal law reserves the TOP for government-related debts, meaning your refund is safe from direct seizure by private collectors before it is issued.
For a private creditor to collect, they must first file a lawsuit and win a court judgment declaring the debt is owed.
After obtaining a judgment, the creditor can garnish money after it has been deposited into the debtor’s bank account. By seeking a bank levy from the court, the creditor can require the bank to turn over funds from the account to satisfy the judgment. This action targets the bank account, not the tax refund directly.
Protections for Joint Filers
When a married couple files a joint tax return, the entire refund can be seized for a debt owed by only one spouse. This can include a spouse’s defaulted federal student loan from before the marriage or past-due child support. The IRS provides a protection known as “Injured Spouse Allocation” for this situation.
This provision allows the non-obligated, or “injured,” spouse to request their portion of the joint refund. To qualify, a person must have filed a joint return, reported income, made tax payments, and not be legally responsible for the debt. The request is made using IRS Form 8379, Injured Spouse Allocation.
Filing this form initiates a process where the IRS divides the joint refund and tax items between the spouses based on their individual contributions. The IRS uses this allocation to calculate the injured spouse’s share of the refund, which is then issued separately.
How to File for Injured Spouse Relief
There are two primary methods for submitting IRS Form 8379. The first is to attach the completed form to your joint federal income tax return (Form 1040) when you file. Filing the form with the original return allows the IRS to process the allocation before an offset occurs, though it can extend processing times.
The second method is to file Form 8379 by itself after receiving a Notice of Offset. In this case, you mail the completed form to the appropriate IRS service center. When filing separately, you must attach copies of all W-2s and any other forms showing federal income tax withholding for both spouses.
Processing for a separately filed Form 8379 takes about eight weeks. Once the IRS approves the claim, it will calculate the injured spouse’s portion of the refund and issue it directly to them.