Tax season is never pleasant, but there's often a reward at the end in the form of a nice tax refund. Unfortunately, creditors can swallow up that refund through offsets, which take money from your tax refund in much the same way that garnishment can hit your paycheck. You will get a written notice of any offsets, but if you want to know about them in advance you can call a toll-free number at the Treasury Department.
How Offsets Work
Offsets are essentially a go-to-the-source form of debt collection. For certain types of debts, your creditors can apply to the Treasury Department to reclaim the money you owe from your tax refund. Naturally, the federal government itself is among those creditors, so if you owe any outstanding taxes or penalties they can be taken from your refund through an offset. State agencies can also apply to recover the money you owe them for some debts, such as unemployment insurance overpayments. You can also face an offset if you have unpaid federal student loans, or if you're behind on your child support payments. Those offsets can make a serious dent in your refund, or even swallow it up completely, so you'll have plenty of motivation to find out how much you'll face in offsets.
Contacting the Treasury Department
The IRS doesn't administer offsets; it just processes your tax return in the normal fashion. From there, your return goes to the Department of the Treasury's Treasury Offset Program, or TOP, which matches your refund to any eligible debts in its database. If the amounts presented for collection are smaller than your expected refund, you'll receive a check for the balance. If they're larger, your whole refund will go to pay them. You can find out to whom the offsets are going, and what the total will be, by calling the TOP's call center at 1-800-304-3107. You should only call the IRS itself if the original amount of your refund, before the offsets, was lower than it should have been.
Challenging an Offset
If you receive a notice of offsets from the TOP, and you believe that one or more of those debts were not legitimate, you have the option of challenging it. The TOP's call center will provide you with the name and contact information of the agency that requested the offset, and you'll need to pursue it directly through that agency. Usually, you'll have to provide documentation to show that your debt was paid in full, or that you have a formal payment arrangement in place and have been meeting your payments. It may take some time to resolve the dispute, so be polite, patient and above all persistent until it's settled.
If It's Not Your Debt
If you're married and filing jointly, it's quite possible that part of your refund will disappear as an offset against your spouse's debt. That's just not right, and there's a well-established mechanism in place to recover the money you're owed. You'll need to fill out Form 8379, Injured Spouse Allocation, and submit that to the IRS. It can go in along with your 1040 if you know ahead of time that there will be offsets, in which case you should write "Injured Spouse" on the top left corner of the first page of the joint return. If you need to submit a 1040X to amend your return you can attach your 8379 to that instead, or you can just submit the 8379 on its own after you receive notice of an offset. Either way, the IRS will issue you a check for the amount that was wrongly deducted from your return.