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Refund/Overpayment Applied to Other Taxes

May 27, 2014

You are waiting for your refund money to reach you, but instead of the refund check, you receive an IRS notice informing you that your refund has been applied to pay for unpaid taxes. This happens when the IRS finds that you owe back taxes and uses your refund amount to satisfy the full or a part of your tax debt.

The IRS sends Notice CP49 to inform taxpayers about how much tax they overpaid over the last year (i.e. the amount of their refund) and how much of it the IRS used to fulfill their tax debt. If you do not have a tax debt, then you should immediately contact the IRS to correct their mistake.

When you receive Notice CP49, it means that you have a tax debt or there are other federal taxes that have remained unpaid. If your refund money covered for the entire tax debt, then you do not need to take further action. If your refund money did not satisfy your entire tax debt, then you can either pay the remaining balance in a lump sum or qualify for a payment plan.

Many times, the IRS discovers that a taxpayer is under tax debt after they review their information and make changes to the tax return. In such cases of underpayment of taxes or owing of other tax debts, if the taxpayer has a refund, the IRS will use that refund to pay towards the tax debt. Simply put, if the IRS discovers that you have any unpaid federal taxes, they will satisfy the maximum amount of debt using your tax refund.

If you still owe federal taxes after the IRS used your refund, and you cannot pay the balance in a single payment, you can use an Installment Agreement to pay the remaining tax debt in monthly installments. If your financial condition does not allow you to pay the balance, then you can consider applying for tax debt reduction plans such as Offer in Compromise or Partial Payment Installment Agreement.

If you are already making payments to the IRS under a payment plan, you should continue to do so. Your tax refunds will be used to pay for the tax debt until your entire tax debt is paid off.

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