Will My Taxes Be Offset? How to Check and Resolve Debts
Learn how to check for tax offsets and resolve related debts efficiently to ensure your tax return is not impacted.
Taxpayers may face the possibility of having their tax refunds offset due to outstanding debts, which can significantly impact their expected refund amount. Understanding how offsets work and the steps to address them is crucial for those affected.
Debts That May Lead to an Offset
Tax refund offsets are triggered by specific debts prioritized by the federal government. One common example is unpaid federal taxes. Under Section 6402 of the Internal Revenue Code, the IRS can seize a taxpayer’s refund to cover back taxes, applying the refund to the debt before issuing any remaining amount to the taxpayer.
Delinquent child support is another debt that leads to offsets. Through the Treasury Offset Program (TOP), the federal government intercepts tax refunds to address overdue child support. States report delinquent cases to the federal government, and the intercepted funds are sent to the appropriate state child support agency for distribution to the custodial parent.
Student loan defaults also result in offsets. The Higher Education Act authorizes the Department of Education to collect on defaulted federal student loans by offsetting tax refunds. This ensures recovery of funds from borrowers who have failed to make payments.
The Offset Notification and Timeline
When a refund is subject to an offset, the Bureau of the Fiscal Service sends written notice to the taxpayer. This notice details the specific debt, the amount being offset, and the agency responsible. It also provides contact information for the agency, enabling taxpayers to seek clarification or dispute the debt. Notices are generally sent weeks before the IRS processes the refund, allowing time to address the issue.
The actual offset occurs when the IRS processes the tax return. While the IRS typically processes returns within 21 days, an offset may extend this timeline. During this period, taxpayers can resolve the debt or negotiate with the agency to potentially prevent the offset.
How to Check for Possible Offsets
Taxpayers can manage their expectations by checking for potential offsets before filing. The TOP call center at 1-800-304-3107 provides information on outstanding debts that could trigger an offset.
Reviewing your credit report can also reveal debts that may lead to an offset, as federal agencies often report delinquent obligations to credit bureaus. Identifying these debts early allows taxpayers to address them proactively.
Contacting the agency responsible for the debt is another effective step. For instance, borrowers concerned about student loan defaults can reach out to the Department of Education or their loan servicer for clarity. These agencies can explain the debt status and suggest resolutions, such as rehabilitation or consolidation, to avoid an offset.
Resolving Offset-Related Debts
Resolving offset-related debts requires understanding the obligations involved. For federal debts, establishing a repayment plan can be effective. The IRS offers installment agreements tailored to a taxpayer’s financial situation, allowing debts to be paid over time.
In some cases, negotiating a settlement is an option. The IRS’s Offer in Compromise program lets taxpayers settle tax liabilities for less than the full amount owed if they meet specific criteria. This program considers factors like income, expenses, and assets to determine an acceptable offer, providing relief from large debts and preventing future offsets.