We all look forward to receiving our tax refunds, but what if you were expecting a refund and it never arrived? It may be because you have outstanding federal or state debts—and not just tax-related debts. The Treasury Department's Bureau of the Fiscal Service (BFS) issues federal tax refunds. Congress authorizes BFS to reduce your refund through its Treasury Offset Program (TOP) to pay:
Past-due child and parent support;
Federal agency non-tax debts;
State income tax obligations; or
Certain unemployment compensation debts owed to a state (generally, these are debts for (1) compensation paid due to fraud or (2) contributions owed to a state fund that weren't paid).
If you owe a debt that's past due, all or part of your federal income tax refund may go to pay your outstanding federal or state debt if it was submitted for tax refund offset by an agency of the federal or state government.
If an offset occurs, BFS will send you a notice. The notice will also reflect the original refund amount, your offset amount, the agency receiving the payment, and the address and telephone number of the agency. BFS will notify the IRS of the amount taken from your refund once your refund date has passed. You should contact the agency shown on the notice if you believe you don't owe the debt or if you're disputing the amount taken from your refund. You should only contact the IRS if your original refund amount shown on the BFS offset notice differs from the refund amount shown on your tax return. If you don't receive a notice, contact the BFS's TOP call center at 800-304-3107 (or TTY/TDD 866-297-0517), Monday through Friday, 7:30 a.m. to 5 p.m. CST.
If you choose to wait and see what happens when you file your return, BFS will send you a notice if an offset occurs. If you wish to dispute the amount taken from your refund, you will have to contact the agency that submitted the offset claim. BFS will include the agency and their contact information on the notice.
If your payment was reduced because a federal or state agency thinks you owe money, you should also receive a letter from that agency. Call or write to them at the contact information on the letter. If you can't find that information, you can get it by calling BFS's TOP call center at 800-304-3107. Only the agency that told BFS to collect the debt can work with you to return any part of a payment erroneously taken from your refund.
If you filed a joint tax return and only one spouse is responsible for the debt, the other spouse may be entitled to part or all of the refund. To request a refund for the spouse not responsible for the offset, you can file for an injured spouse allocation. The IRS will compute the injured spouse's share of the joint refund. If you lived in a community property state during the tax year, the IRS will divide the joint refund based upon state community property law. Not all debts are subject to a tax refund offset.
If your debt was submitted for offset, BFS could reduce your refund as needed to pay off the debt and send it to the agency you owe. Any remaining portion refund after offset is issued as a check or as a direct deposit, as originally requested on the tax return.
The Treasury Offset website includes a Q&A section.
Regarding the COVID-19 pandemic Economic Impact Payments (EIPs) issued in 2020 and early 2021, the second EIPs authorized in late December of 2021 are not subject to offset for any reason through the Treasury Offset Program. However, the first EIPs created by the CARES Act could have been entirely offset, up to the amount of an individual's child support debt. The EIPs are advance payments of the Recovery Rebate Credit that is part of your 2020 tax return. To the extent that you have an overpayment of your 2020 income tax liability, the Recovery Rebate Credit can be reduced to pay debts you owe to Federal or state agencies.
In the future, if you have outstanding debt and want to be proactive, you can contact the agency to which you are indebted to determine if your debt was submitted for a tax refund offset.
Please contact our office if you need assistance filing for an injured spouse claim or if you have other questions about refund offsets.