If you have a delinquent state tax bill, the Internal Revenue Service is within its rights to withhold or divert your refund to settle this unpaid debt. Depending on the circumstances, the federal government can offset, or withhold, all or part of your federal tax refund and send the funds to the state you owe to pay off your delinquent tax bill.
Federal Laws and Regulations
The U.S. tax code authorizes the U.S. Treasury to use monies from a federal tax refund to pay certain delinquent federal payments and state debts owed by a taxpayer. Title 26, Section 6402(e) of the U.S. Code requires that a state income tax debt be past due to qualify for a federal offset. This means that either a court judgment or an administrative hearing has determined the amount of the delinquent state tax debt that is due.
The Offset Process
When the IRS authorizes a federal tax refund, it sends a payment request to the U.S. Treasury’s Bureau of Fiscal Service. Using the recipient’s Social Security number or employer identification number, the bureau’s Debt Management Services department checks its list of delinquent federal and state debts. If the recipient appears on its delinquent debt list, Debt Management Services determines whether the type of debt, including a delinquent state tax payment, is legally subject to a federal income tax refund offset.
Exceptions to This Rule
The U.S. Treasury will not authorize an offset from your federal tax return if the state has not reported your delinquent debt to the Bureau of Fiscal Service. Your debt must appear on the Treasury’s delinquent debt list. The Treasury also does not offset an unpaid state tax obligation that has been delinquent for 10 years or more. Federal law restricts offsets of state delinquent tax debts to residents of the state that is owed money. If you do not live in the state to which you owe a delinquent tax debt, the federal government will not withhold the amount of the debt from your federal tax refund.
Notice of Offset
If the U.S. Treasury plans to offset your delinquent state tax debt from your federal tax refund, it will send you a notice before taking action. The notice will provide the original amount of your federal tax refund, the amount of the offset, the state tax authority receiving the payment and the telephone number and address of that agency. Contact the state tax authority if you want to dispute the existence of the debt or the amount owed. You may also call the Treasury at 800-304-3107 to ask questions about the offset. The Treasury will send you a check for the portion of your refund remaining after any offset.
- Internal Revenue Service: Tax Refund Withholdings and Offsets
- U.S. Treasury, Debt Management Services: Treasury Offset Program
- U.S. Government Printing Office: 26 U.S.C. 6402, Authority to Make Credits or Refunds
- U.S. Government Printing Office: 31 U.S.C. 3720A, Reduction of Tax Refund by Amount of Debt
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