Circumstances Under Which IRS Will Hold Tax Refund

by Wilhelm Schnotz, Demand Media
    You're not always guaranteed to receive your tax refund.

    You're not always guaranteed to receive your tax refund.

    For many taxpayers, there’s a silver lining to the hassle of filing taxes: the refund. If you’re expecting a refund, it’s tough to keep yourself from fantasizing about all the ways you’ll spend your windfall. Before you start shopping for that vintage guitar you always coveted or trying on designer-label evening gowns, you’d better take it easy. Although you can expect to receive your refund if you calculated your return properly in most cases, the Internal Revenue Service can hold it if it deems you haven’t been playing by the rules.

    You're Too Late

    While you’ll earn interest on your refund as it sits in the IRS’ coffers if you file late, you can’t put off claiming that return forever. In addition to late-filing penalties that incur when you dawdle, the IRS only allows you procrastinators a window in which to claim your back taxes. At three years, it’s a rather large window, but wait longer than that, and the statute of limitations expires on your refund. It becomes the property of Uncle Sam. You snooze, you lose.

    You Have Tax Issues

    Tax refunds only go to taxpayers who keep up on their commitments. If you skipped a year and didn’t file a return in the past, don’t expect the IRS to overlook it. The agency will hold your return if you haven’t filed in past years. Don’t think the bean counters at the IRS are going to overlook the fact that you still have an unpaid tax bill sitting around on the books and send you a refund this year. If you still owe a balance from prior years, prepare yourself to receive a letter that your refund’s been applied toward your outstanding balance.

    You're Behind on Bills

    If you have bill collectors hounding you, you can at least rest easy that the IRS won’t hand your check over to most creditors as garnishment. While your credit-card bills are off limits to refund garnishment, the IRS doesn’t take so kindly to unpaid child support payments, and if you’re behind on those, it applies your tax return to your court-ordered obligations. If you’re delinquent in paying off federally subsidized student loans, the IRS will also apply your refund directly to your loan balance.

    You're In Bankruptcy

    While most creditors can’t garnish a tax refund, everything changes drastically when you file bankruptcy. The court that administers your bankruptcy filing may decide to intervene and seize your tax refund to help sort out the situation with your unpaid creditors. If you’re in Chapter 13 bankruptcy, the court can request the funds be directed to your reorganization, and those in Chapter 7 bankruptcy may lose their refund entirely. If your bankruptcy’s been discharged before your file your return, you can expect to receive your refund as normal.

    About the Author

    Wilhelm Schnotz has worked as a freelance writer since 1998, covering arts and entertainment, culture and financial stories for a variety of consumer publications. His work has appeared in dozens of print titles, including "TV Guide" and "The Dallas Observer." Schnotz holds a Bachelor of Arts in journalism from Colorado State University.

    Photo Credits

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