We are almost at the end of tax season 2024 and some taxpayers are waiting for their refunds, but what about the government taking that money? There are certain scenarios where the government can take your refund. This process, called a tax refund offset, is managed by the Treasury Offset Program (TOP) and might happen on the following scenarios

Scenarios

  1. Federal Tax Debt – If you owe unpaid federal income taxes, the IRS can apply your refund toward your outstanding tax liability, including penalties and interests.
  1. State Income Tax Debt – If you owe income taxes to a state government, your federal tax refund can be offset to cover that debt.
  1. Child Support Arrears – If you owe past-due child support, your refund can be intercepted to pay the outstanding amount.
  1. Defaulted Federal Student Loans – If you default on a federal student loan (not applicable for private student loans), your refund can be used to repay part of the loan balance.
  1. Unemployment Compensation Overpayments – If you received unemployment benefits you were not entitled to (e.g., due to fraud or administrative errors), your refund can be offset to recover those overpayments.
  1. Other Federal Agency Debts – Debts owed to other federal agencies (e.g., Small Business Administration loans, Veterans Affairs overpayments) can result in a tax refund offset.
  1. Court-Ordered Restitution – If you owe restitution ordered by a federal court, your refund may be seized to satisfy the obligation.

In general, a 60 days notice should be release before the offset – 65 for student loans.

How to avoid the offset

  1. Have no refund: Lower your Federal withholding (w4 form) so there is no refund available at tax time
  2. Pay the Debt: Resolve outstanding debts before filing your tax return.
  3. Dispute the Debt: If you believe the offset is incorrect, contact the agency listed on the notice.
  4. Injured Spouse Relief: If you filed jointly and the debt belongs solely to your spouse, you may be able to protect your portion of the refund by filing Form 8379 (Injured Spouse Allocation).
  5. Hardship Assistance: Some agencies may allow for a hardship appeal if the offset causes severe financial strain.

 

If you are delayed with your refund, first check the website Where is my refund IRS or similar at the State and local level. You can also call them, but it might be extremely difficult to get in touch. If you receive a notice regarding the tax refund offset, then, reach out to our team to provide you options for your specific situation.