The unpleasant news is that the IRS has the authority to seize your refund if you are a frequent visitor to the IRS website to check the status of your refund.
The U. S. In situations where you owe money to government agencies, the Treasury Department permits the Bureau of the Fiscal Service (BFS), the organization that cuts your IRS refund check, to retain your refund.
The BFS has two different programs that collect debt, depending on the type of debt owed. Federal tax debt is collected by their Federal Payment Levy Program (FPLP). Everything else is handled by the Treasury Offset Program (TOP).
Don’t sweat it! Your 2021 tax refund is safe from most creditors, thanks to federal law. Only government agencies, like the IRS or state agencies, can take your refund to pay off certain debts.
Here’s the lowdown:
- Federal debts:
- Past-due federal taxes
- Student loan defaults (after 270 days of non-payment)
- State debts:
- State income tax debts
- Unemployment compensation debts (at least 180 days delinquent)
- Child support arrears
- Spousal support arrears (if part of a child support order)
Private creditors like credit card companies or medical bill collectors, cannot touch your refund. So breathe easy and focus on other ways to manage those debts.
But wait, there’s more!
You may still receive your whole refund even if you owe money to a government agency. Here’s how:
- Hardship: If you’re facing financial hardship, you can apply for a hardship exemption with the agency collecting the debt. This might allow you to keep your refund.
- Bankruptcy: Filing for bankruptcy can also protect your refund from garnishment.
- Innocent spouse relief: If your spouse’s debt is causing your refund to be garnished, you might be eligible for innocent spouse relief. This means you won’t be held responsible for your spouse’s debt.
Still have questions?
No worries! Here are some resources to help you out:
- IRS website: https://www.irs.gov/taxtopics/tc203
- eFile.com: https://www.efile.com/tax-refund-offset-hardship-and-garnishment/
- Taxpayer Advocate Service: https://www.taxpayeradvocate.irs.gov/
Remember, knowledge is power! By understanding how tax refund garnishment works, you can rest assured that your 2021 refund is safe from most creditors.
You owe back child or spousal support
Your refund can be applied directly to the past-due amount if you’ve fallen behind on child or spousal support.
The BFS doesn’t mess around when it comes to back child support, either. In 2021, the Fiscal Service collected $2. 71 billion of delinquent child support, according to the agency’s 2023 annual report.
You may be able to arrange installment payments with the Treasury Department. Your financial circumstances must be disclosed to their debt recovery analysts in order for them to approve a payment plan for you.
TOP may get in touch with your state or local child support enforcement office to start the collection process if the amount you owe exceeds what your refund covers.
You defaulted on a student loan
The return of student loan repayment has worried millions of borrowers. The BFS withholds your tax refund and applies it toward repayment of federal student loans in the majority of cases where they are unpaid.
However, the U.S. Department of Education’s new Fresh Start program is providing relief for borrowers who have defaulted on their student loans – one major form of relief is pausing refund collections. The government can’t withhold your tax return for student loan repayment until at least September 2024. You’ll have to qualify and apply for Fresh Start to receive this benefit.
If you haven’t yet defaulted on a student loan but are in danger of doing so due to difficult circumstances, speak with your lender about a new payment schedule, deferment, or forbearance.
State fines and your tax refund: Unpaid parking fines, traffic tickets, and court costs may also be deducted directly from your state tax refund in states that collect state income taxes. To learn the most recent laws in your area, contact your local tax authority or a certified tax professional.
How do you find out if your tax return will be garnished?
FAQ
Will the IRS garnish my tax refund 2021?
How will I know if my tax refund will be garnished?
Can I stop my tax refund from being garnished?
What kind of debt can the IRS take your refund for?
What if I owe a tax refund from 2021?
The IRS Owes 940,000 Taxpayers $1 Billion in Refunds from 2021. Here’s What to Know If you’re owed a refund from 2021, you have just about a month to file before your money disappears forever. After three years, the IRS turns over any unclaimed tax refunds to the US Treasury.
Can the IRS garnish my tax refund?
Before any other federal or state agency can garnish your tax refund, you need to be current on your federal income tax payments. This is because the outstanding taxes you owe to the IRS always need to be paid first from available tax refunds.
What if I missed a 2021 tax refund?
If you only missed out on 2021’s Economic Impact Payment and didn’t file your 2021 return, you have until April 15, 2025, to file your return and claim your missing money. How can I find out if the IRS has an unclaimed tax refund for me?
Can government agencies garnish tax refunds?
It allows federal and state government agencies to collect outstanding debts owed to them by garnishing, or offsetting, your debt with your tax refund. Government agencies frequently garnish federal income tax refunds since they are the most common federal payments.