Many taxpayers are surprised when their refund doesn't match the return they submitted to the Internal Revenue Service (IRS). It is helpful to know that the IRS retains the right to adjust the refunds of taxpayers in some instances. Understanding the reasons behind such adjustments and what steps to take after the adjustments have been made is fairly easy.
There are two main reasons the IRS would change your refund. The first reason would usually involve state and federal agencies that submit to the Financial Management Service (FMS) a list of taxpayers who owe state and federal debts. If you owe a federal debt, FMS will authorize the IRS to offset the refund and apply the amount offset to your debt owed. In the second instance, tax returns are corrected for math errors and those corrections changes the refund.
The math error could be the result of a mistake made on your return. If you made a mistake in calculating your deduction, tax, income or credits, the IRS will automatically correct the information on electronic returns or manually correct the mistakes on mailed-in returns. Additionally, the IRS will adjust your refund if it receives information which indicates an error was made. The IRS often adjusts taxpayers' returns if they receive a W-2 or 1099 that differs from the income information listed on the filer's return.
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If you made a math error on your income tax return, the IRS will mail you a math error notice alerting you of the changes and how those changes to your return affect your income tax return. In some cases, such as an incorrect Social Security number, the notice from the IRS will advise you to call the IRS and provide the correct information. If you owe a state or federal debt, such as child support, federal taxes or state taxes, the letter will include the amount of the possible offset as well as the contact information for FMS. Once the refund is processed, FMS will take whatever portion has been allotted to pay the delinquent support and refund the remainder to the taxpayer.
If the IRS adjusts your return and the refund becomes a balance due, penalties and interest will begin to accrue on the debt owed. It is important for you to pay the balance, make arrangements to pay, or file a 1040-X to make corrections to your return. You can set up a payment plan with the IRS by completing IRS Form 9465 and mailing it to your service center.