Circumstances Under Which IRS Will Hold Tax Refund

If you owe a federal or state debt, your income tax refund could be swallowed up.

If you owe back child support, debts to a federal agency, state income taxes or unemployment debts owed to a state, you could find your tax refund is reduced or completely withheld by the Internal Revenue Service. The mechanism by which the IRS keeps all or part of your tax refund is called the Treasury Offset Program.


Reasons Why the IRS Can Keep Your Refund

In general, the IRS can keep your refund if you owe any federal or state debts. Student loans are considered federal debts if they were guaranteed by a federal agency. Stafford loans are one example of a federally backed student loan. If you owe back child support, the federal Office of Child Support Enforcement can notify the IRS and request that your refund be withheld. Other reasons why you might see your refund disappear include delinquent state and federal taxes or any other delinquent federal debt.


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Treasury Offset Program

When the IRS is notified of a debt, it will place that notification in a payment file. When your refund is processed, the IRS will deduct any amounts showing in your payment file. You'll be issued a refund for the reduced amount. The IRS will send you a letter notifying you of what payments were made to which agency. You'll be given the name and address of the agency to whom the offset amount was sent in case you want to dispute the validity of the debt.

Injured Spouse Allocation

If you filed a joint return but you were not responsible for your spouse's debt, you may be able to get your portion of the refund. To claim your refund, you must fill out Injured Spouse Allocation Form 8379. File the form after you have received notification of the offset. If you file Form 8379 with your tax return, you should write "INJURED SPOUSE" on the top left corner of your 1040, 1040A or 1040EZ.


Reasons for Delays

If the IRS is holding onto your refund and you don't think you owe any federal or state debts, it could be that there's just a delay in processing your tax return. Some common errors that may delay processing of your tax return include missing or incorrect Social Security numbers, incorrect tax amounts reported based on filing status and taxable income, computation errors, estimated tax payments or withholding entered on the wrong line or mathematical errors. To avoid these common errors, consider using tax software and electronically filing your return.


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