What Is a Tax Refund Offset and How to Respond?

A tax refund offset occurs when the federal government reduces or withholds a taxpayer’s expected income tax refund to satisfy a past-due debt owed to a government agency. The Bureau of the Fiscal Service (BFS) manages this process through the Treasury Offset Program (TOP). If a refund is offset, the taxpayer receives a notice detailing the original refund amount, the offset amount, and the agency that received the payment.

Debts Leading to Offset

Several types of past-due debts can trigger a federal tax refund offset, including delinquent child support payments and federal student loan debts. Unpaid federal taxes from previous tax years are another significant cause for an offset. Additionally, unpaid state income tax obligations can result in a federal refund offset. Various non-tax debts owed to other federal agencies can also lead to an offset. Examples include debts owed to agencies like the Department of Veterans Affairs, the Small Business Administration, or for certain unemployment compensation overpayments. These non-tax debts are generally eligible for collection through TOP if they are delinquent for more than 120 days and are legally enforceable.

Notification and Inquiry

If a tax refund is subject to offset, the taxpayer receives notification from the Bureau of the Fiscal Service (BFS). This notice, which may be an IRS Notice CP21A for certain adjustments, provides details such as the original refund amount, the amount offset, and the contact information for the agency that received the payment. For offsets involving federal tax debts, the IRS sends the notice, while for other debts, the notice comes from the Fiscal Service. Taxpayers can proactively check for potential offsets using the IRS’s “Where’s My Refund?” tool, though this tool primarily shows the refund status and if it has been adjusted. For more specific information about an offset, including which agency received the funds, individuals can contact the TOP automated phone system at 800-304-3107; however, the IRS cannot provide details about non-federal tax debts, so inquiries must be directed to the agency to which the debt is owed.

Disputing an Offset

If a taxpayer believes their tax refund offset was made in error or wishes to dispute the underlying debt, they should contact the agency to which the debt is owed, not the IRS; the notice received from the Bureau of the Fiscal Service will list the name and contact information for the agency that requested the offset, and when contacting them, taxpayers should have their Social Security number, the notice number, and any relevant documentation regarding the debt readily available. The agency that referred the debt is responsible for addressing disputes and can provide information about the debt’s validity or accuracy. If the dispute is denied, some agencies may offer an appeals process. In situations where a joint tax return was filed and only one spouse is responsible for the debt, the other spouse may be able to claim their portion of the refund through “injured spouse relief” by filing IRS Form 8379, Injured Spouse Allocation. This form can be filed with the original tax return or separately after notification of the offset.