Does the IRS Apply Refunds Due to the Money Owed From Previous Years?

by Tom Streissguth, Demand Media
    The IRS reserves the right to withhold refunds for back taxes and other debts.

    The IRS reserves the right to withhold refunds for back taxes and other debts.

    When you have too much income tax withheld from your paychecks, or overpay estimated taxes, you may wind up with a refund owed from the Internal Revenue Service. The IRS will send you a check, or direct-deposit your refund if you've given them your bank account and routing number. If your tax refund is delayed or does not arrive, there may be an order to garnish it, or it may be due to back taxes owed from previous years.

    Refunds and Late Payments

    A refund results from an overpayment of taxes. After the IRS processes your return, it normally issues the refund in full, as long as there are no math errors or other problems with the information on the return. If you owe tax, then IRS rules require payment with the return. Late payments carry penalties and interest. If you fail to pay the back taxes, the IRS will send a demand for payment and give you 30 days before the collection process gets underway.

    Refund Seizures

    The IRS will send out notices to begin the collections process. You have 30 days to respond to a demand for payment. After this time elapses, the IRS can proceed to garnish your wages, seize property or levy your bank account. The agency will also withhold tax refunds due in order to satisfy the debt. After taking this action, the IRS sends out a notice explaining the seizure of your tax refund, the amount applied to the back taxes, and the balance that remains, if any. The refund seizures will continue until back taxes are paid in full.

    Offset Program

    Your tax refund is also subject to garnishment for other reasons. Federal law has created the Treasury Offset Program, which is administered through the U.S. Treasury's Bureau of Fiscal Service -- the agency that actually sends out tax refunds. Through the TOP, you may be paying past-due child support, student loans, back state income taxes, or an overpayment of unemployment benefits. The Bureau of Fiscal Service normally will notify the IRS and you of the offset. If you don't receive notification, you can contact the customer service number at the agency or the entity that you believe responsible for the offset.

    Injured Spouses

    If you file a joint return showing a refund, and your spouse owes back taxes from a previous return to which you were not a party, you can request protection from seizure of your portion of the refund. To claim this "injured spouse allocation," you must file Form 8379 with the IRS. This form can go in with the joint return, or you can file it after the refund is seized or with an amended tax return.

    About the Author

    Tom Streissguth has authored more than 100 books for the school and library market, including works for the Gale, Enslow, Facts on File and Lerner Publications. He is the founder of The Archive, an independent publisher of historical journalism collections, and holds a Bachelor of Arts from Yale University.

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