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The Horror of Refund Offsets

Maybe the only attractive aspect of tax season is receiving a refund. But when the amount received is only a portion of the original refund amount, or is not received at all, it can be disappointing and often confusing. If you have certain delinquent debts, the U.S. Treasury reduces your federal tax refund (sometimes to zero) to satisfy the balance. This is called a refund offset.

The Offset Notice

In the case of a refund offset, you will receive a notice from the Financial Management Service (FMS) of the U.S. Treasury with information on your actual refund and your offset amount. The notice also includes the name and contact information of the agency receiving the offset payment. The Treasury Department’s FMS is the agency that issues refunds and carries out offsets.

The Process of Refund Offset

Some of the debts to which refund offsets can be applied are overdue child support, federal income tax, state income tax, and student loans. Agencies such as the Department of Education submit delinquent debts to the Fiscal Service for collection.

Officials compare the payment information with data obtained from the creditor agency. If the payee’s TIN and name matches the TIN and name of a debtor in the records, the refund will be offset to fully or partially to satisfy the debt. The Fiscal Service then transfers the withheld amount to the creditor agency.

The Fiscal Service will continue to carry out refund offsets until the debt is paid in full, or until the creditor suspends or terminates the debt collection.

Debtor Rights

If you do not have a financial debt and have received an offset notice, or want to dispute the amount offset from your refund, you may contact the agency that received the offset amount. The agency’s name and contact information is included in the notice. Neither the IRS nor the FMS answers queries about refund offsets.

If you filed a joint tax return and your refund was offset, you may be entitled to a part or the entire offset amount if your spouse was solely responsible for the debt. This relief is a part of the Injured Spouse Allocation.