You've finished your tax return and the IRS owes you a refund, but you receive a notice from the federal government instead. The unfortunate reality is that the Treasury Offset Program, or TOP, run by the Department of the Treasury's Bureau of Fiscal Service, can and will intercept your tax refund to pay off certain debts. You might have recourse with some of these debts, but it will take some time to work things out.
Who Can Offset Your Refund?
First, the good news: Your average lender can't step in and tell TOP to send your refund to them instead. Only government agencies can do so, and only for certain debts. They must send all information regarding your debt to TOP to initiate the offset process. Debts that can be paid from your tax refund include:
- State taxes
- State unemployment compensation
- Past due child support obligations
- Past due spousal support obligations
- Federal student loans
- Non-tax debts owed to a federal agency
Offsets can also occur because you owe federal taxes from previous years, but the IRS takes this action directly. It doesn't involve TOP.
The BFS Offset Process
Government agencies can contact TOP when your debt is 90 days delinquent. They must provide proof of the debt and its details. TOP will evaluate the information to make sure the debt does indeed meet the criteria for an offset. The debt is then entered into a federal database.
BFS is the agency that actually processes and sends out tax refunds, not the IRS. It will check the database before sending your refund and it will subtract the debt if it's in the database. BFS will send your money to whatever agency you owe instead. You'll receive the amount that's leftover, if any.
In the case of delinquent child support obligations, the money is sent to the Department of Health and Human Services, not directly to your ex. HHS will then send it to your state's child support services agency.
You Should Receive a Notice First
The agency to which you owe the debt is obligated to send you written notice that all this is about to happen and give you an opportunity to avoid it by either paying the debt or disputing it. You should also receive a statement of your rights. You have 60 days after receiving this first notice to resolve the issue with them one way or the other.
BFS will send you a second notice that the offset has occurred if you're unable to resolve the issue with the agency. It should identify the agency that initiated the offset and provide contact information for that entity, as well as the total amount of the debt and the amount of the offset.
What Can You Do?
BFS indicates that you must contact the creditor agency directly to dispute an offset or establish that the debt has been paid. TOP can't help you if you're in the database.
You can contact TOP in writing, however, if you have reason to believe that you might be in their database. TOP will respond in writing, letting you know if this is indeed the case so you can try to resolve the issue before an offset happens. But, of course, all this takes time. The process depends on the U.S. Postal Service.
As for child support debts, you can contact your state's support agency and ask them to reach out to HHS to confirm whether they've received your refund. You can reach out to the IRS at 800-829-1040 if your original refund amount on your tax return doesn't match with the refund amount stated on the TOP notice. This could indicate that a federal tax debt is involved as well, and it's the only reason you should contact them, according to IRS Topic 203.
How Long Will All This Take?
A tax refund offset reversal can be a long, arduous process because it involves multiple government agencies. Neither the IRS nor BFS can clear your offset. Only the creditor agency can do so, and this might not happen for at least 60 days after you receive the first notice because you have this long to dispute the debt or pay it.
You can contact the Department of Education to appeal an offset related to student loans after it's occurred, or you can do so to request a review of the situation before it occurs. You have 65 days after receiving the first notice to request a review.
The time frame for child support debts is similar. You must contact your state agency within 60 days of receiving the first offset notice.
Coronavirus Economic Impact Payments
As for that economic impact payment that also comes from the federal government due to the coronavirus pandemic, there's a bit of good news here. That payment can't be offset for most debts. The only exception is if you owe child support.
- Bureau of the Fiscal Service Treasury Offset Program: Frequently Asked Questions for the Public
- Bureau of the Fiscal Service Treasury Offset Program: Federal Withholdings and Offsets
- IRS: Tax Refund Offsets Pay Unpaid Debts
- IRS: Topic No. 203 Reduced Refund
- CommunityTax: Notice of Intent to Offset
- Taxpayer Advocate Service: Refund Offsets
- Connecticut State Department of Revenue Service: Refund Offset and Treasury Offset Program
- Bureau of the Fiscal Service Treasury Offset Program: Frequently Asked Questions on the Economic Impact Payments and the Treasury Offset Program