CARL WATTS & ASSOCIATES

September 15, 2014

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What Can Offset Your
Federal Tax Refund
If you filed your tax returns just like you should and didn’t get the refund that you were expecting, you probably have already received a notice from the IRS explaining to you what happened with your refund money.

The fact is that the Bureau of Fiscal Service, which runs the Treasury Offset Program, can use part or all of your federal tax refund to satisfy certain unpaid debts.

Here are the most important facts that you should know about tax refund offsets.

If you owe federal or state income taxes, your refund will be offset to pay those taxes. If you had other debt, BFS will apply as much of your refund as is needed to pay off the debt and then issue any remaining refund to you.

While a refund offset cannot be initiated to satisfy debt collectors or creditors who've filed a judgment against you in court, they can be implemented for a number of other debts, from child support to student loans. Below are some detailed examples.

Federal taxes. If you failed to pay taxes due in previous years or you owe money to the IRS for any reason, the agency will partially or fully offset your refund to collect these funds. Federal tax debts take precedence over other types of debts when it comes to offsetting your tax refund.

Federal agency non-tax debts, which include past due or defaulted student loan payments, payments on HUD loans and any fines, penalties or fees due to any federal department. If you've accepted overpayments or fraudulent payments on Social Security or disability benefits or other federal insurance programs, these debts may also cause your refund amount to be reduced.

Past-due child support. The federal tax offset programs kicks in if you owe more than $150 in state-assigned tax support payments or more than $500 in child support payments to an individual, such as your child's custodial parent. If the amount of the past due child support exceeds your refund, the IRS may continue to garnish your refund for multiple years until the debt has been satisfied.


State income tax obligations. If you owe state income taxes to any state, whether you still live there or not, the IRS can offset your refund to take care of these debts. The government can claim this money even if you have a payment plan in place with the state that you owe money to.

Certain unemployment compensation debts owed to a state. Generally, these are debts for (1) compensation that was paid due to fraud, or (2) for contributions owing to a state fund that were not paid due to fraud.
You will receive a notice if an offset occurs. The notice will include the original refund amount, your offset amount, the agency receiving the payment and its contact information.

If you believe you do not owe the debt or you are disputing the amount taken from your refund, you should contact the agency shown on the notice, not the IRS.

If you filed a joint return and you're not responsible for the debt, but you are entitled to a portion of the refund, you may request your portion of the refund by filing IRS Form 8379, Injured Spouse Allocation. Attach Form 8379 to your original Form 1040, Form 1040A, or Form 1040EZ or file it by itself after you are notified of an offset. Form 8379 can be downloaded from the IRS website.


You can file Form 8379 electronically. If you file a paper tax return you can include Form 8379 with your return, write "INJURED SPOUSE" at the top left of the Form 1040, 1040A or 1040EZ. IRS will process your allocation request before an offset occurs.


If you are filing Form 8379 by itself, it must show both spouses' Social Security numbers in the same order as they appeared on your income tax return. You, the "injured" spouse, must sign the form. Do not attach the previously filed Form 1040 to the Form 8379. Send Form 8379 to the IRS Service Center where you filed your original return.

The IRS will compute the injured spouse's share of the joint return. Contact the IRS only if your original refund amount shown on the BFS offset notice differs from the refund amount shown on your tax return.

Follow the instructions on Form 8379 carefully and be sure to attach the required forms to avoid delays. If you don't receive a notice, contact the Financial Management Service at 800-304-3107.

It is, as always, our recommendation to enroll help from a tax professional in all your dealings with the IRS, whether you dispute any offsets of your tax refund or not.



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