6 Ways the IRS Can Seize Your Tax Refund

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6 Ways the IRS Can Seize Your Tax Refund

If you haven’t received your federal income tax return yet this year, here’s one reason why: the IRS may have taken it. The same federal department that provides tax refunds, the United States Department of the Treasury, has the right to withhold all or part of your return to satisfy debts you owe. The Bureau of Fiscal Service of the Department is in charge of this. This is referred to as a “offset” in bureaucratic parlance.

Key Takeaways

  • If you owe federal or state back taxes, the IRS may confiscate any or all of your refund.
  • It may also take your return if you fall behind on child support or student loan payments.
  • If you suspect an error has been made, you may notify the IRS.

The IRS may confiscate your return for six reasons. Here are the details and what you can do about it.

6 Reasons the IRS Can Seize Your Tax Refund

All six factors are connected to a taxpayer’s failure to settle personal obligation on time.

To recover debts, the Treasury Department may garnish your Social Security or Social Security Disability Insurance (SSDI) payments.

You Owe Federal Income Taxes

If you owe past taxes, you may use your return to pay or offset the amount owed. If any money remains, it will be returned to you in the manner specified on your tax return, either by direct deposit or cheque. The IRS should also send you a note explaining why the money was withheld.

If you suspect an error has been made, you may notify the IRS. The phone number is (800) 829-1040.

  Tax Code

You Owe State Income Taxes

The federal government may also deduct money from your tax return to settle any outstanding state income taxes.

The IRS should be contacted first at (800) 829-1040. Because a state government is also engaged, you might be in for a ride on this one.

You Owe State Unemployment Compensation

If your state feels you received more in unemployment benefits than you were entitled to, either via flagrant fraud or a failure to correctly disclose your wages, it might request that the amount in question be deducted from your tax return.

Your first step is outlined above. The IRS may be reached at (800) 829-1040. You must be prepared to demonstrate that you were entitled to unemployment benefits.

You Defaulted on a Student Loan

If you fail on a federally insured student loan, the government has the authority to confiscate your tax return to balance the amount you owe.

In this scenario, the Treasury Department is obligated to give you with early notice of its plan and a chance to contest or pay off the claim before your return is withheld.

By the way, your state is also permitted to deduct money from your state tax return for this reason. Furthermore, the United States Department of Education and the guaranty agency that holds your loan have the ability to require your employer to withhold up to 15% of your discretionary income until the loan is paid off.

You Owe Child Support

When a parent fails to pay court-ordered child support, the state’s child-support agency may request that money be withheld from the person’s tax return to reimburse the back payments.

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In this case, the debtor should get a pre-offset notification outlining how much is due, how the offset procedure works, and how to fight the claim. Once the money has been withheld from the return, the taxpayer should get an offset notification from the Bureau of the Fiscal Service indicating the amount withheld.

Anyone in this position should seek more information from the state child support agency.

You Owe Spousal Support

If the payments are late, an award for spousal support as part of a child support order may result in a tax-refund offset.

In a similar vein, if you filed a joint tax return with your spouse and your refund was reduced due to obligations owed only to the spouse, you may obtain a refund from the IRS. To file a claim, the taxpayer must complete and submit Form 8379: Injured Spouse Allocation.

Other Ways the Government Can Collect

The Treasury’s ability to collect on past debts is not limited to your tax return. In rare cases, your Social Security or Social Security Disability Insurance (SSDI) payments may be garnished (that is, partly withheld).

Supplemental security income, on the other hand, cannot be garnished, even by the government. This is a separate program from Social Security that offers a basic income to persons aged 65 and above, the blind, and people with disabilities.

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