In a Nutshell
Did you receive a notice from the Treasury Department that your tax refund will be offset? A refund offset means that instead of getting the refund you expected, your overpaid federal income taxes will go toward an unpaid government debt.This article was fact-checked by our editors and Christina Taylor, MBA, senior manager of tax operations for Credit Karma.
Are you expecting a refund this year?
If you are, you’re probably eagerly waiting for the direct deposit to hit your account, or maybe for a paper check to arrive in the mail. But if you have outstanding government debt, like an unpaid federal student loan or child support, your refund could be lighter than you expected — or nonexistent.
The Treasury Offset Program could whittle away at your refund if you haven’t paid certain debts. Here’s what you should know about TOP, how it works and how a refund offset could affect your refund.
- What is a refund offset?
- How can I tell if I’m included in the TOP database?
- How can I avoid having my refund taken by TOP?
What is a refund offset?
If you owe money to the federal government because of a delinquent debt, the Treasury Department can take all or part of your federal income tax refund to satisfy that debt. Delinquent debts can include unpaid taxes, federal student loans, child support and more.
The Bureau of the Fiscal Service, a division within the Department of Treasury, runs the Treasury Offset Program. The bureau “acts as sort of a centralized paymaster and collection agency for the federal (and some state) government,” says Christopher Jervis, president of Lone Wolf Financial Services LLC in Conyers, Georgia.
“I’ve seen cases involving state unemployment benefits that were required to be repaid, as well as food stamps that were improperly received and ordered to be repaid,” Jervis says.
TOP can affect more than just federal tax refunds. Other types of federal payments are eligible as well, including the following:
- Wages (including military pay)
- Retirement benefits (including military retirement pay)
- Payments to government contractors and vendors
- Travel advances and reimbursements
- Social Security or Railroad Retirement benefits
- Other federal payments that are not exempt by law or by action of the Secretary of the Treasury
Before the relevant agencies — the IRS, in the case of your tax refund — send these payments, they compare their payment information with the TOP database. If your name and tax identification number match a debt in the TOP database, then your payment will be offset and sent to the appropriate government agency.
In some cases, federal law may limit the amount that can be withheld from some types of federal payments. You can find a complete list on the Department of the Treasury website.
“These are often ‘means based’ payments like Social Security Income, Temporary Assistance for Needy Families and food stamps,” Jervis says. “However, improperly receiving any of those benefits and not repaying them can result in an offset order to capture those repayments from future tax refunds or other eligible federal payments.”
How can I tell if I’m included in the TOP database?
In most cases, agencies will refer your debt to TOP if it is more than 90 days delinquent. Having a debt referred to TOP should never come as a surprise. Before a federal or state agency refers your debt to TOP, the agency must send you notices about your debt and inform you of your rights and repayment opportunities.
If those attempts fail, the agency informs the Bureau of the Fiscal Service that you owe a delinquent debt. The Fiscal Service must send you a letter notifying you that your debt is subject to being offset. They must also provide instructions for contacting the agency that can resolve your debt.
If your address has changed, those notices may be delayed. And of course, mail does occasionally get lost. So if you’re concerned that you could be included in the TOP database, you can call the TOP Call Center at 800-304-3107.
The TOP Call Center cannot make arrangements for you to pay off the debt, tell you how much you owe, or refund your money if you believe your federal payment was offset erroneously. However, they can give you information on the federal or state agency you need to call to resolve your situation.
How can I avoid having my refund taken by TOP?
The best way to avoid having your refund offset by TOP is to pay the debt. You can do that online at pay.gov/paygov/paymydebt, by phone at 888-826-3127, or by mail:
Department of the Treasury
P.O. Box 979101
St Louis, MO 63197-9000
If you aleady paid your debt in full, or if you believe you don’t owe the debt for other reasons, but are still included in the TOP database, you must speak to the agency that reported the debt to TOP.
“The TOP is simply a clearinghouse,” Jervis says. “If money is said to be due, and they have some coming out, they redirect it. They cannot change the amounts owed or disregard the offset order. All of that has to be done by the agency reporting the debt.”
In some cases, your tax refund may be offset for a debt that your spouse owes because you filed a joint return. In that case, you can file Form 8379, “Injured Spouse Allocation,” to have your share of the refund returned to you.
You can proactively file Form 8379 with your joint tax refund to avoid having all your refund seized, or you may file it separately from the return if you find out later that your refund is subject to being offset.
If you’ve tried to work with the federal agency that is enforcing the debt but you’re having trouble getting your issue resolved, you may be able to get help through the Taxpayer Advocate Service, or TAS. Use the tool on the TAS website to locate your local office.
Bottom line
If you’re delinquent on a federal or state debt, including child support or federal student loans, don’t count on receiving your full federal income tax refund. The government is pretty efficient at seizing eligible payments to satisfy unpaid debts. In fact, they collected $7.1 billion for federal and state agencies in the fiscal year 2016.
Even a small collection can have a big impact on your refund. It’s a good idea to be proactive about paying your federal debts and set up a repayment plan whenever possible.
Relevant sources: IRS: Six Facts on Tax Refunds and Offsets | Bureau of the Fiscal Service: Frequently Asked Questions for the Public (Treasury Offset Program) | IRS: Instructions for Form 8379
Christina Taylor is senior manager of tax operations for Credit Karma. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.