If you receive a notice from the Department of Treasury that your tax refund is subject to offset, it means your refund might be intercepted to pay another bill you or your spouse may owe. The Internal Revenue Service sends you a letter to let you know this will happen and gives you information about the agency you owe. In most cases, you’ll receive the notice from the IRS after you file your return, but there is a way to see if you’re in the offset system before you file.
TL;DR (Too Long; Didn't Read)
When your tax refund gets offset by the Department of Treasury, this means your refund goes toward paying a debt that you or your spouse might owe.
Debts Subject to Offset
The IRS is authorized to collect debts you owe to other agencies by taking some or all of your federal tax refund. The IRS can take your refund to pay other federal taxes you owe, but it can also take your refund to pay state taxes, back child support, unemployment compensation debt and debts from other federal agencies, such as defaulted student loan balances.
If you think you might be in the offset system, you can call the IRS Financial Management System at 800-304-3107. This is an automated system, and you won’t have an opportunity to speak with an agent when you call. You can find out if you owe any debts subject to offset and the name of the agency you owe before you file your return.
Filing a Dispute
If you don’t owe the agency that placed you in the offset program or believe the amount owed on your notice from the IRS is incorrect, you must contact the owing agency directly. The IRS can’t process any offset disputes and is not able to give you any information about your debt unless it concerns taxes you owe the IRS. The IRS does provide the phone number or available contact information for the agency involved so you can request more information.
Effect on Joint Refunds
If you’re married and file a joint return, your whole refund will be sent to the agency that placed you in the offset program. In cases where you and your spouse are both responsible for the debt, there is little you can do to prevent your entire joint refund from being offset. However, in cases where only one spouse is liable, it’s possible for the non-liable spouse to receive his portion of the refund when an injured spouse claim is filed.
Injured Spouse Claims
An injured spouse claim can be filed when one spouse is not responsible for the debt of another spouse. Common types of singular spouse liabilities include back child support and federal student loan debts but might also include tax debts that accrued prior to marriage or on a previous separate return.
If you are an injured spouse and want to receive your portion of the refund subject to offset, file IRS Form 8379. If you know your joint refund is subject to offset before you file, you can submit the form with your return. If you find out about the offset after you file, send the form in separately. If you send the form later, don’t attach a copy of the tax return you already filed because it delays the processing of your claim.
The IRS uses information from the return you file to allocate your portion of the refund. If your claim is allowed, you’ll receive the amount due you.
With a background in taxation and financial consulting, Alia Nikolakopulos has over a decade of experience resolving tax and finance issues. She is an IRS Enrolled Agent and has been a writer for these topics since 2010. Nikolakopulos is pursuing Bachelor of Science in accounting at the Metropolitan State University of Denver.