Can Anyone Put a Lien on My Tax Refund?

Rules of Liens

A lien is a claim against a particular item of property, which does not have to be physical property. This claim can be exercised by companies or businesses that are owed a debt. A lien can be either voluntary, meaning a debtor requests it, or involuntary, as when it is mandated by a court or other legally capable entity. As a general rule, liens are designed to prevent an individual from selling or transferring property without paying a debt, allow the individual or company making the claim to sell the property to repay the debt and give the individual or company priority against claims by any other creditors.

Student Loans

If you default on your student loans from college, the Department of Education can place a lien on both your federal and state income taxes. The Department of Federal Student Aid states that student loans can enter default status if they remain unpaid after 270 to 360 days. Once you are in default status, the Department of Education notifies the IRS to issue all of your tax refund to pay the debt, if required, or the portion owed.

Others

If you have not paid your taxes for previous years and are expecting an income tax refund, you can expect the IRS to place a lien on this refund. In fact, this is usually the first step taken by the IRS to collect any back taxes. Additionally, if you owe child support arrears and are delinquent in payments, your income tax refund may be subject to a lien by your state child support enforcement agency. Each state specifies its own rules for delinquency. As an example, the New Jersey Office of Child Support Enforcement orders liens on the tax refunds of non-custodial parents who owe $500 or more in child support payments.

Creditors

If you owe any outstanding credit card or bank debts, a lien cannot be placed on your income tax refund by these creditors. Federal law prohibits creditors from placing liens on federal income tax refunds, which are considered IRS possessions. Because state income tax refunds are the property of the state governments, they are also exempt from liens. However, should you deposit your income tax refund into your bank account, your refund could be garnished if the creditor has obtained a judgment and a resulting bank execution.