One highlight of tax season is receiving your tax refund. It’s like a present to yourself after having money taken out of your paycheck by Uncle Sam all year long. But have you been checking your bank account or the mail every week wondering why your refund hasn’t shown up? One scenario may be the culprit behind your barren account and mailbox: the IRS seized your refund
Many taxpayers wonder, “can you get a tax refund if you owe the IRS?” Owing taxes to the federal government is never an ideal situation, but in the event that you do, it’s important to know that the IRS can use all or a portion of your tax refund to offset any debts you owe.
In this post, we’ll go over whether you can get a refund if you owe the IRS, along with what to do if the IRS took your refund. Read through for a full understanding of the IRS’s power to seize your refund, or navigate to a section of your choice using the list below.
- When Can the IRS Take My Refund?
- How to Get a Full Tax Refund
- Resolve Your Tax Issues
When Can the IRS Take My Refund?
Can you get a tax refund if you owe the IRS? In most cases, no. The amount they take depends on how much you owe the IRS, but if you’re indebted to the IRS, they have the power to garnish your tax refund to offset personal debts, such as back taxes, child and spousal support debt, student loan debt, and more. Below, you’ll find different personal debts that can lead to the IRS seizing your tax refund.
Will the IRS take your refund if you have back taxes? Yes. Back taxes are any taxes that are unpaid or partially paid at the federal, state, or local level. Owing back taxes at any of these levels can result in your tax refund being garnished. When part or all of your tax refund is used to offset back taxes, the IRS will send you an IRS offset notice that warns you of their intent to offset a portion or the entirety of your federal tax refund.
Additionally, if you’ve elected to manage your debts through a repayment plan, such as an IRS installment agreement, the IRS will still take your tax refund and use it to pay off your tax debt. If you have back taxes owed, refer to our guide to paying off IRS debt .
Treasury Offset Program
The U.S. Department of the Treasury has a bureau called the Bureau of Fiscal Service, which is responsible for disbursing federal payments, such as your tax refund. When you owe money to the federal government, the Bureau of Fiscal Service’s Debt Management Services will collect your delinquent debts that are owed to federal agencies and states. This is called the Treasury Offset Program (TOP), which receives information from creditor agencies, such as the Department of Education, that submit delinquent debts that qualify for collection by offset.
Before the IRS gets ready to send you your tax refund, they look through information provided by creditors to see what you might owe. If the IRS’ database matches your tax identification number (TIN) with the TIN provided by a debtor, they will withhold part or all of your tax refund to satisfy the debt. In 2018, the TOP collected $2.9 billion in delinquent debts.
One option for some taxpayers to relieve themselves from tax debt is by filing for bankruptcy. The most common type of bankruptcy for individuals is Chapter 7 bankruptcy. This type of filing liquidates your assets to help pay off your creditors. But who gets the money first? That’s up to the IRS to decide.
When filing for bankruptcy, the IRS lists three different payment priorities for creditors:
- Priority and nondischargeable unsecured tax debt, such as trust fund taxes, taxes that have not been assessed but are still assessable, taxes on returns where the due date of the return is within three years of the bankruptcy filing date, and taxes assessed within 240 days of the filing date. These debts cannot be discharged and must be paid first before any other debt.
- Nonpriority and nondischargeable unsecured tax debt, such as taxes on returns that have not been filed, taxes on fraudulent returns, taxes for years where the taxpayer evaded taxes, and taxes filed late within two years of the filing date. While these debts are not the top priority, they can’t be discharged.
- Nonpriority and dischargeable unsecured tax debt, which are unsecured taxes that fall into the catchall of nonpriorty and dischargeable, which means these debts can be forgiven and you won’t have to pay them.
Child & Spousal Support
If you’re a parent who’s behind on paying court-ordered child support, your state’s child support agency will send information to the Treasury Offset Program and let them know you have delinquent child support debt. When the Treasury Department receives this information, they will send you a pre-offset notice informing you how much you owe, how the offset program works, and ways you can contest your child support debt. The TOP will then use part or all of your tax refund to pay off your back payments.
The same process works for spousal support. If you’re behind on court-ordered spousal support that’s part of your child support order or behind on court-ordered alimony support, the TOP can use all or part of your tax refund to offset your overdue payments.
Back taxes, child support payments, and spousal support payments aren’t the only personal debts that can lead the IRS to take your refund. Along with these debts, the IRS can take your refund if you’re behind on student loan payments or state unemployment compensation.
Getting a collegiate degree is an expensive endeavor that leads to millions of students relying on loans to further their education. A recent study from The Urban Institute found that nearly 1 million Americans default on their student loans every year, and it’s estimated that by 2023, 40 percent of Americans may default on their student loans.
If you default on federally-insured student loans, the government has the power to seize your tax refund to pay for your outstanding student loan debt. Along with this, the U.S. Department of Education has the ability to require your employer to garnish up to 15 percent of your income until your defaulted loans are satisfied.
Along with student loans, the IRS can seize your tax refund if you collected unemployment compensation you weren’t eligible for. Whatever the case may be, your state’s unemployment program can ask the U.S. Department of Treasury to offset your tax refund.
How to Get a Full Tax Refund
Depending on how many allowances you had withheld, you can be due a fairly hefty tax refund. In order to receive the full amount of your tax return and prevent your tax refund from being garnished, it’s best to pay your taxes on time and in full. If you have any tax debt or other debts, such as student loans or child support, do your best to repay some or all of the debt. This will leave more money in your tax refund.
It’s also important to remember that the IRS isn’t perfect, which means they can make mistakes. If you believe the IRS made a mistake seizing your tax refund, you have 65 days to contest the notice and fight for your refund.
Resolve Your Tax Issues
At Community Tax, we’re dedicated to helping you resolve your tax issues. We offer a variety of tax resolution services that can help you repay your tax debts and get on good terms with Uncle Sam. Some of our tax resolution services include:
- Installment Agreements, which allow you to pay off your balance over a period of time without compromising other financial obligations or your needs.
- Stair Step Agreements, which create a payment schedule to ensure other financial obligates avoid defaulting.
- Streamlined Agreements, which don’t require you to disclose all of your financial information to the IRS or state agency, and is beneficial if you have substantial assets or disposable income.
- Partial Pay Agreements, which require you to disclose all of your financial information in order to negotiate a hardship payment that is less than the monthly payment needed to satisfy your tax debt in full.
Our tax professionals can also help negotiate Conditional Expense Installment Agreements, Traditional Installment Agreements, Currently Not Collectible Status, Penalty Abatements, and Offers in Compromise. Whatever your current situation is, our team of tax experts will work with you to find a solution that meets your needs.
In addition to our tax resolution services, we also provide tax preparation services to ensure you’re in good standing in the future. Our team can help you accurately file your taxes to make the most of your return by finding deductions and credits that lower your tax liability.
When you choose Community Tax, you gain the peace of mind you deserve knowing your taxes will be taken care of by licensed professionals who want to set you up for success.