Understanding taxes can be a difficult task. Not only is tax law complicated, but the laws are always changing. If you are confused about how to move forward with your taxes, it is highly recommended that you speak with a qualified tax professional. The content below is meant for informational purposes, and any tax information regarding taxes has been sourced directly from the IRS website.
What Is A Tax Refund Offset?
A tax refund offset is the amount of money that is taken out of your refund to repay an unpaid debt that is either state or federal. Depending on the amount of money that you owe, you may not see any of your refund because it has been sent to the debtor. If you know that you have a tax refund offset and you know how much you normally get for your refund, you can do the math and see whether you will have any refund left over after the offset.
Here are some other important facts that you need to know about tax refunds and offsets:
- The agency that issues tax refunds and conducts the Treasury Offset Program is the Treasury Department’s Financial Management Service.
- If you have child support, state income tax or student loans that are unpaid, FMS may apply part or all of your tax refund to the repayment of that debt.
- If an offset occurs, you will receive a notice from FMS. In the notice, you will find the original tax refund amount and your offset amount. You will also see the agency receiving the offset payment and their contact information.
- If you don’t think you owe the debt in question, you can dispute owing or the amount taken from your refund by contacting the agency that received the offset amount. The FMS and IRS will not be able to help you with your dispute.
- Those of you that file a joint tax return may be entitled to part or all of the offset refund. If your spouse is the only one that is responsible for the debt, you can request your part of the refund by filing the Injured Spouse Allocation using Form 8379. You can find the form on IRS.gov or call their phone number 1-800-829-3676
How to Determine if Your Taxes Will be Offset
You may find yourself Google searching, “How to Find Out If My Taxes Will Be Offset.” If you aren’t sure if your taxes will be offset or not, there is a phone line you can call to check and see if there is currently any offset. You should note that this is updated every day so while you might not have anything showing today, you could have an offset on your social security number tomorrow. Also, note that you should never check the information of another person and that your phone number is recorded for security purposes.
How to Avoid a Tax Refund Offset
If you think you might come up against a tax refund offset, you might be trying figure a way out of it. If you plan on fighting the offset, you must have a valid reason that you do not want to pay the offset. The fact that you don’t have the money to pay it is not a valid reason. Valid reasons might be reasons like total and permanent disability, the debt was never your debt or that the debt is covered under bankruptcy.
Instead of trying to fight a tax refund, the best way to get out of a tax refund offset is by getting out of default with whatever bill is causing you problems. Whether you are dealing with taxes or student loans, some options can help you get back on track.
If you can’t catch up with the bills in their entirety, you can speak to your current loan provider and ask them about loan rehabilitation. If they are willing to work with you, they will help you get back on track with payments that you can manage. After the rehabilitation period, your bill is likely to go back up to the higher payments again so that you will start paying down your loan payment.
Another option to get out of default with your loan is to refinance and/or consolidate your current loan(s) to get a better interest rate and/or a better payment plan. Many loan providers are happy to help you get back on track with your loans through consolidation or refinancing, make sure that this is the right option for you and that it aligns with your goals before you get started down this path.
If you don’t want to consolidate and refinance, you can start working on getting your debt taken care of by paying double payments. Often it can take you a while to get caught up, even when making double payments, but you have to start somewhere. Getting a side gig can help you pay down your loans so you can get out of default and avoid tax refund offsets.
Final Thoughts on Tax Refunds and Offsets
While you might not be thrilled about being hit with offsets, they are 100% legal, and the offsets will happen whether you want them to happen or not. They cannot be fought and should be avoided at all costs. Developing good habits to keep you out of financial trouble is key, and if you show you are acting in good faith, you will find that many creditors are happy to work with you toward a solution.
If you have had a tax refund offset due to student loan debt, share your experience in the comment section below.