IRS Letter 729: Your Tax Refund Was Used to Pay a Debt
Understand IRS Letter 729, a notice confirming your tax refund was applied to a past-due tax balance from a different tax year.
An IRS Notice CP49 informs you that a tax refund from one tax year has been used to pay an outstanding federal tax liability from a different year. This notice is not a bill but a final notification explaining an action the IRS has already taken with your funds. The notice provides a clear record of how your overpayment was applied, ensuring you understand why you did not receive the expected refund amount.
The Reason for a Refund Offset
The reason for receiving this notice is a process known as a refund offset. Federal law grants the IRS the authority to apply available overpayments to any past-due federal tax debts before issuing a refund. This means if you were due a refund for the 2024 tax year but had an unpaid tax bill from 2022, the IRS will automatically use the 2024 refund to cover the 2022 debt.
This internal IRS process is for tax debts only. A separate program called the Treasury Offset Program (TOP) collects other past-due debts for federal and state agencies. TOP, which is managed by the Bureau of the Fiscal Service (BFS), can use your federal tax refund to pay non-tax debts like past-due child support, student loans, or state income tax. If your refund is used for a non-tax debt, you will receive a notice from the BFS, not the IRS.
Analyzing the Details of Your Notice
The offset notice will state the amount of your original refund and the tax year it came from. It will also detail the debt that was paid, specifying the amount, the tax year it originated from, and the associated tax form, such as “Balance due for Form 1040 for tax period ending Dec. 31, 2022.”
The notice then shows the result of the offset, calculating how much of your refund was used. This could result in a remaining refund being issued to you or show that a portion of the old debt is still outstanding if the refund did not cover it entirely.
How to Proceed After Receiving the Notice
If you agree with the information on the notice, no further action is required. If you disagree with the offset, you must contact the correct agency. For refunds applied to a non-tax debt, call the Bureau of the Fiscal Service’s TOP call center at 800-304-3107 or the specific government agency that was owed the money. The IRS cannot assist with these non-tax debt issues. You should only contact the IRS if the original refund amount shown on the notice is different from the refund amount on your tax return.
A common reason for disagreement on a joint tax return is when one spouse’s portion of a refund is used to pay a debt that belongs solely to the other spouse. In this situation, the non-obligated spouse may be considered an “injured spouse” and can seek to reclaim their portion of the refund by filing Form 8379, Injured Spouse Allocation. This form allocates income, deductions, payments, and credits between the two spouses to calculate the injured spouse’s rightful share of the joint overpayment.