When someone falls behind on bills, creditors sometimes take steps to levy money or assets to satisfy the debt. Your IRS refund is your asset, but only the federal government can direct the Internal Revenue Service to withhold it and use it to pay off a debt you owe. Creditors or debt collection agencies can’t get your IRS refund directly.
Government agencies can ask the IRS to intercept your tax refund and pay debts you owe. For example, if you're behind with child support payments or if you default on student loan payments, the IRS can intercept your tax refund and pay your debt. If you owe state or federal income tax, or if you owe other money to other federal agencies, the IRS can levy your refund as payment. After your refund amount hits your bank account, all your creditors can lay claim on your money. That’s because state laws allow creditors to garnish your salary and levy your bank balance, including your refund amount if you deposit it.
Before levying your refund, the IRS sends you a Notice and Demand for Payment. If you can, respond and pay the amount you owe quickly. If you don’t, the IRS might send you a levy notification or a Final Notice of Intent to Levy and Notice of Your Right to A Hearing. You might receive the notices in person, at your home or workplace, or the IRS might mail the notices to the last address they have for you. You can appeal the levy within 30 days of date on the notice.
You’ll need the proper documents to prove your reasons for appealing the levy. For example, you can provide proof that shows you’ve already paid off the debt. If the amount levied is more than your actual debt, documents showing the debt amount can support your claim. You also can appeal if you believe the levy isn’t lawful. For example, if you owe student loans and the school closed and you couldn't complete your courses, you can claim that you don’t qualify for a levy. You also can appeal the levy if you’re facing financial hardship.
Statute of Limitations
The IRS can try to collect taxes from you up to 10 years after the date your taxes were assessed. After that time, the tax collector can’t legally levy your refund. Also, the IRS might need to release the levy if it committed a procedural error. For example, if the IRS did not send you a notice of your right to a hearing, you can ask for a review of your case or file an appeal with the office listed on your notification.
You can ask the IRS for other payment options and avoid levies on your tax refund. For example, if you get an agreement to make installment payments on your tax debt, the IRS might release the levy on your tax refund. You also can use a credit card to pay your tax debt. In addition, you can submit an offer in compromise, which lets you settle your tax debt for less than you owe. The IRS suspends the levy while the offer is pending. You get an additional 30 days to resolve the issue if the IRS rejects your offer.