As tax time rolls around, you may be eagerly anticipating an infusion of cash into your budget in the form of a tax refund. If you don’t have enough taxes withheld from your paychecks, or if you have income from which taxes aren’t withheld, such as interest on savings accounts or money from an inheritance, you might end up owing taxes – no refund for you. But sometimes people expect to get a refund and are disappointed to learn the money isn’t coming to them. The IRS could keep your refund for several reasons.
Student Loan Default
If you fail to pay your federal student loans, the government may turn to your tax refund to collect some of the money you owe. The process of using your tax refund to pay other debts is called offset. If your loan is in default, the U.S. Treasury Department will notify you of their intent to offset the loan. This means that every federal and state tax refund to which you’re entitled will go toward repaying your loan, until the loan is repaid or you reach a settlement with the Treasury Department. If a married couple files a joint tax return, but only one half of the couple is in default on a loan, the spouse who is not in default may file an Injured Spouse claim with the IRS to recover half of the tax refund.
If you owed taxes from a previous year’s income tax return and you were unable to pay that debt, the IRS will apply any current refund due you to that debt. If your refund equals more than your debt, you’ll receive the balance in the form of a check or direct deposit, but if your tax refund isn’t enough to cover the back tax debt, the IRS will take future tax refunds until the debt is paid. If you fail to pay taxes you owe, you may also owe penalties and interest, which increase your tax bill.
The Federal Office of Child Support Enforcement (FOCSE) also looks to tax refunds to collect back child support owed. The FOCSE collects your tax refund and sends it to the state where you owe support payments, and the state distributes it to the person to whom it was owed. Your tax refund may also go to pay delinquent court-ordered spousal support. If you have remarried and you do not live in a community property state, your spouse may file an injured spouse claim to recover part of the tax refund.
If you believe your tax refund was withheld to pay a debt you do not owe, you must contact the agency handling the debt, not the IRS, and file a dispute in writing. State why you feel you do not owe this debt and ask the agency to stop offsetting your tax refunds. Agencies are required to notify you of their intent to offset your refund, but the agency will send the notification to the last address they have on file for you. If you’ve moved, you may not have received notification. If you’re entitled to a refund and haven’t received it, you can check the status of your refund at the IRS "Where’s My Refund?" website.
Cynthia Myers is the author of numerous novels and her nonfiction work has appeared in publications ranging from "Historic Traveler" to "Texas Highways" to "Medical Practice Management." She has a degree in economics from Sam Houston State University.