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What are Tax Refund Offsets?

April 3, 2014

When a part of or the full tax refund amount is used for the partial or full payment of tax debt, it is called tax refund offset. The law allows the IRS to use your tax refund amount to fulfill past taxes you owe. When your tax return is processed, the IRS checks whether you owe any back taxes or owe a federal payment. If they find a debt, they will take a part or the full refund amount, depending on the amount of tax debt, to fulfill that debt.

The Treasury Department’s Financial Management Service (FMS) handles tax refunds. Creditor agencies such as the Department of Education submit information of all debts to the FMS. When reviewing a tax return, the IRS checks it against their debtor database to find if any debt remains to be paid. They match the name and the Taxpayer Identification Number (TIN) of the taxpayer whose return is being processed.

Kinds of Unpaid Debts Covered

Tax refund offsets cover not only tax debts, but also any overdue child support, student loans, etc. For example, if you have unpaid child support of $2,000 and your tax refund amount is $2,500, the FMS will deduct the $2,000 and send you a check of $500.

Along with the check, you will also receive a notice from the FMS to inform you about the original tax refund amount, the amount deducted from it and why, and the balance paid to you. If you believe that there is a mistake, you can contact the agency and provide them with the proof to prove your claims.

Jointly Filed Returns

If you file returns jointly, but you believe that your partner was responsible for the debt and that you should not be impacted by it, you can send a request to the IRS to claim the retained tax refund amount by filing Form 8379 Injured Spouse Allocation. You may download this form and print it from the IRS website – IRS.gov – or call the IRS on 1-800-829-3676.

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