Many taxpayers look forward to receiving a nice tax refund from the IRS each year. However you may find your refund is smaller than expected or not arrive at all. This is often because the refund has been garnished to pay certain outstanding debts.
So can your 2021 tax refund be garnished? The short answer is yes. Here’s what you need to know about tax refund garnishment and how it works.
What is a Tax Refund Garnishment?
A tax refund garnishment allows the government to seize part or all of your tax refund to pay debts you owe. This process is also known as a tax refund offset.
Only certain government agencies not private creditors, can garnish your tax refund. The debts that can trigger garnishment are limited as well.
How Does Tax Refund Garnishment Work?
Two government programs handle garnishing tax refunds:
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Federal Payment Levy Program (FPLP) Collects past-due federal tax debts owed to the IRS
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Treasury Offset Program (TOP): Collects non-tax debts owed to federal and state agencies. This includes student loans, child support, unemployment compensation debts, etc.
The IRS always pays itself first before allowing other agencies to garnish a refund. So any federal tax debt you owe will be collected before things like overdue student loans.
What Debts Can Lead to a Refund Garnishment?
Here are the main types of debts that may result in your refund being garnished:
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Unpaid federal income taxes – The IRS can seize your entire refund to pay federal taxes you owe from previous years.
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Past-due child support – States work with the Treasury to garnish refunds for overdue child support payments. This has first priority after federal tax debts.
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Federal student loan defaults – If your federal student loan is 270+ days past due, the Department of Education can offset your refund.
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State income tax debts – Refunds can be taken to pay back taxes owed to your state.
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Unemployment compensation debts – States can garnish refunds to recoup unemployment benefits you weren’t eligible for.
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Other federal debts – Refunds may be seized for other debts owed to federal agencies like overpayments to VA, FHA, etc.
How Do You Know Your Refund Was Garnished?
If part or all of your refund was garnished, you’ll receive a notice explaining why.
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For federal tax debts, it will come from the IRS.
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For other federal debts, it will come from the Bureau of the Fiscal Service.
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For state debts like child support, it will come from your state agency.
The notice will show the original refund amount and amount taken for debts. It will also provide contact info if you have questions or want to dispute the garnishment.
Can You Prevent a Refund Garnishment?
There are a few options to potentially stop a garnishment:
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Request a hardship exemption – You may qualify to keep your refund if facing financial hardship.
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File for bankruptcy – Bankruptcy will halt collection of many debts, including refund garnishment.
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Seek innocent spouse relief – If your spouse’s debt is causing your refund to be taken, you may be able to file Form 8379 to recover your share.
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Request an installment plan – You may be able to set up a monthly payment plan for debts rather than having your refund garnished.
The Takeaway
Having your tax refund garnished can be frustrating. But only certain government agencies can take your refund, and only for specific types of debts.
If you receive a notice that your refund was offset, be sure to follow up with the creditor agency right away. You may be able to resolve the issue or set up an alternative repayment method.
Key Takeaways:
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Federal law allows only state and federal government agencies (not individual or private creditors) to take your refund as payment toward a debt.
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The Treasury Offset Program (TOP) allows the government to seize refunds for delinquent federal and state debts like taxes, child support, and student loans.
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The IRS always pays federal tax debts first before letting other agencies garnish a refund.
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To prevent garnishment, you can request a hardship exemption, file for bankruptcy, seek innocent spouse relief, or set up a repayment plan.
Tax Refund Garnishment Process
Now that we understand that both government agencies and non-governmental entities have the ability to garnish tax refunds, let’s explore the process involved in tax refund garnishment. Understanding this process can help you navigate potential issues and take proactive measures to prevent or mitigate garnishments.
Who Can Garnish Tax Refunds?
When it comes to who can garnish tax refunds, there are primarily two categories to consider: federal agencies and state agencies. Let’s focus on federal agencies in this section.
Federal agencies are authorized to collect delinquent debts and have the authority to request the IRS to garnish tax refunds. Some examples of these federal agencies include:
As the primary state agency responsible for collecting federal taxes, the IRS can offset your tax refund against any outstanding federal tax debt you owe. If you owe money to other federal agencies, such as the Department of Education or the Department of Health and Human Services, they can also request to garnish your tax refund to recover the debt owed in accordance with the Treasury Offset Program (TOP), which is a centralized accounting system used by the government.
If you have defaulted on your federal student loans or owe certain other educational debts, such as grant overpayments, the Department of Education can request a tax refund garnishment. Furthermore, it is worth noting that not only educational debts but also unpaid federal and state taxes and even outstanding medical bills can potentially lead to a tax refund garnishment, leaving many taxpayers wondering if everything can be taken away.
If you owe past-due child support payments, state child support enforcement agencies can seek assistance from the IRS to intercept your tax refund and apply it towards child support arrears. Furthermore, if you owe child support payments and are eligible for the child tax credit, it is important to note that the IRS can still garnish your tax refund to cover your outstanding child support obligations.
It’s essential to understand that not all federal debts are subject to tax refund garnishment. For example, certain government debts such as Supplemental Security Income (SSI) overpayments or Veterans Affairs (VA) debts are exempt from this process.
Understanding who has the authority to garnish tax refunds is crucial in navigating through potential issues and taking appropriate steps toward resolving outstanding debts.
When it comes to garnishing tax refunds, federal agencies have the authority to do so under certain circumstances. One notable example is the IRS itself. If you owe federal taxes that remain unpaid, the IRS has the power to offset your tax refund to satisfy the debt. This means that any refund you are entitled to receive can be intercepted and used to pay off your outstanding tax liabilities.
Other federal agencies can also garnish your refunds in specific tax situations. For instance, if you owe delinquent student loan payments or child support, agencies such as the Department of Education and the Department of Health and Human Services can intercept your tax refund to cover those debts. In these cases, they will notify you in advance regarding their intentions and provide an opportunity for you to resolve the matter before taking any collection action.
It is important to note that prior notification and an opportunity to resolve the debt are typically provided by federal agencies before garnishing a tax refund. This gives taxpayers a chance to address their outstanding obligations and avoid having their refunds intercepted.
A tax attorney can communicate on your behalf, ensuring your rights are protected while striving for the most favorable outcome. The specialized expertise from J. David Tax Law, with their focus and experience in tax law, can be instrumental in providing tailored solutions and effective representation in such tax-related matters.
Similar to federal agencies, state governments also have the authority to garnish tax refunds in certain circumstances. The rules regarding state-level garnishment vary from one jurisdiction to another, with each state having its own laws and regulations governing the process.
State governments primarily exercise their right to garnish tax refunds in cases where individuals owe outstanding state taxes, unpaid child support, or other government-related debts. It is essential for taxpayers to familiarize themselves with the laws specific to their state and ensure compliance with any obligations they may have.
It is crucial for individuals to stay informed on their tax obligations at both the federal and state levels to prevent potential garnishment of their tax refunds. By understanding the circumstances under which federal agencies and state governments can exercise this power, taxpayers can take proactive steps to address any outstanding debts and protect their refunds.
When it comes to tax refund garnishment, it’s not only government agencies that have the power to intercept your tax refunds. Non-governmental entities can also pursue legal action to collect outstanding debts, leading to the seizure of your tax refunds. These entities typically include private creditors, such as credit card companies, medical providers, landlords, and even private student loan lenders.
For instance, let’s say you owe a significant amount of money to a credit card company due to unpaid bills. If the company has exhausted other collection efforts, and you still haven’t settled the debt, they could seek legal action and obtain a court order to garnish your tax refunds as a means of recovering what is owed.
It’s important to note that non-governmental entities must first bring a lawsuit against you and obtain a judgment from the court before they can initiate tax refund garnishment. This means they must go through the appropriate legal channels and provide evidence of their claim against you. Once they have a judgment, they can then proceed with requesting the IRS to intercept your tax refunds.
The inclusion of non-governmental entities in the realm of tax refund garnishment highlights the importance of addressing all outstanding debts promptly. Failing to do so may leave you vulnerable to legal action and potential seizure of your tax refunds.
How soon can I get my 2021 tax refund?
FAQ
How do I know if my tax refund is going to be garnished?
Not all debts are subject to a tax refund offset. To determine whether an offset will occur on a debt owed (other than federal tax), contact BFS’s TOP call center at 800-304-3107 (800-877-8339 for TTY/TDD help).
Will the IRS still accept a refund if I owe 2021?
In addition, any refund amount for 2021 will be applied to amounts still owed to the IRS or a state tax agency and may be used to offset unpaid child support or other past due federal debts such as student loans.
Are tax refunds exempt from garnishment?
Details:If you owe a large amount of credit card debt, your federal and state tax refunds are not subject to garnishment.
Can a debt collector take your tax refund?
Federal and state government agencies, as well as private creditors, have the authority to intercept your tax refund to recover overdue debts. The Treasury Offset Program (TOP) plays a central role in this process, ensuring that delinquent debts are collected efficiently.
Can a tax refund be garnished?
Government agencies such as the IRS, state revenue departments, and child support enforcement can garnish your refund to cover unpaid debts. This process, known as a tax refund offset, is used to collect overdue taxes, student loans, child support, and other obligations. Read our full guide to learn how it works and what you can do to prevent it.
Can a spouse garnish a tax refund?
If you and your spouse are filing jointly, your shared refund can be garnished to offset their delinquent debt. You’ll need to file IRS Form 8379, Injured Spouse Allocation Form, to get back your share of the refund. Can my landlord garnish my tax refund?
Who has the authority to garnish a tax refund?
Understanding who has the authority to garnish a tax refund and why it happens can help taxpayers avoid unexpected setbacks. When a taxpayer owes money to the IRS, the agency can seize tax refunds through the Treasury Offset Program (TOP) without a court order. The IRS applies refunds directly to unpaid federal tax liabilities.
Can a debt be offset through tax refund garnishment?
Not all debts are subject to being offset through tax refund garnishment. When you have outstanding debt, the agency you owe must contact you by letter 60 days before they send the debt to the TOP. The letter will include information about making payments, as well as how to contact the TPO agency if you have questions.
Can a shared tax refund be garnished?
Possibly. If you and your spouse are filing jointly, your shared refund can be garnished to offset their delinquent debt. You’ll need to file IRS Form 8379, Injured Spouse Allocation Form, to get back your share of the refund.
How long does tax refund garnishment take?
Tax refund garnishment can take up to 3 months, from start to finish. There are a number of ways that tax refund garnishment can play out. If your outstanding obligation is with the IRS, tax refund garnishment is pretty quick.