The Internal Revenue Service is authorized to use your federal tax refund to recoup any outstanding tax debt or other federal or state nontax debt you owe. Besides unpaid taxes, your federal income tax refund can be used to recoup unpaid child support and student loan debt that is in default. The payment of a debt through your tax refund is a taxable offset.
Federal and State Obligations
If you have unpaid tax debts to either the IRS or your state tax department, the IRS is allowed to use all of your tax refund to recoup the unpaid amounts. If there is any portion of your refund left after the offset, it is refunded to you. Another federal agency that uses taxable offsets is the U.S. Department of Housing and Urban Development. HUD's policy of using taxable offsets to recoup money owed to them includes debts owed by both businesses and individuals.
Unpaid Child Support
The Department of Treasury's Financial Management Service is authorized to recoup unpaid child support debts owed by noncustodial parents. When your state submits the debt for taxable offset, the FMS is authorized to withhold as much of your refund as needed to pay the debt. The state agency responsible for collecting child support payments notifies you when your case is eligible for taxable offset. The state agencies normally have an administrative review process to follow if you feel you do not owe the debt.
The Financial Management Service is also authorized to use your federal tax refund to recoup student loan debt if you are in default. Account records of student loans in default are sent to the IRS for collection. If you have defaulted on your student loan, you can expect the IRS to take your entire refund to pay the debt. Taxpayers who have unpaid unemployment compensation debt can also expect the FMS to send a request to the IRS to withhold payment of your tax refund to pay the debt.
You should receive a notice from the agency that is attempting to use an offset to collect a debt and a notice from the IRS that your refund is being used to collect the debt. If you believe the amount being requested in incorrect or the debt is not valid, it is your responsibility to contact the agency requesting the taxable offset. The IRS notice shows the amount you owe, the original tax refund for which you were eligible and the amount of refund you will receive after the offset has been subtracted.
- IRS: Tax Refund Withholding and Offsets
- IRS: Customer Account Services
- HUD: Federal Tax Refund Policy
- Indiana Department of Child Services: Non-Custodial Parent (NCP) FAQs
- IRS: Refund Offsets: For Unpaid Child Support, and Certain Federal, State, and Unemployment Compensation Debt
- Student Loan Borrower Assistance: Tax Refund Offsets
- Federal Register: Offset of Tax Refund Payments to Collect Delinquent State Unemployment Compensation Debts
Kenneth Oster's leadership experience includes an Air Force career, pastoral leadership, and business ownership in the automotive repair industry. He has a MBA from Western Governors University, and is working toward a DBA degree from Northcentral University. Oster authored the book, "The Complete Guide to Preserving Meat, Fish and Game: Step-by-Step Instructions to Freezing, Canning, Curing and Smoking."