What is a Refund Offset?

Sep 25, 2018 | Tax Consultation,Tax Negotiation and Settlement

The only thing worse than owing taxes to the Government is finding out that you’re getting a tax refund but Uncle Sam is taking it to pay off a debt. This practice is called a “refund offset.” Administered by the Bureau of the Fiscal Service (BFS), a branch of the Treasury Department, the program pays off taxpayer debt through a reduction or garnishment of their tax refund. What is a refund offset used for?

The BFS can slash your tax refund to pay off:

  • Past-due child support
  • Federal non-tax debts
  • State income tax debt, or
  • Certain unemployment compensation debts owed to a state (generally, these are debts for (1) compensation paid due to fraud, or (2) contributions owing to a state fund that weren’t paid).”

What is a Refund Offset Notice?

The letter should show how much your original tax refund was going to be, how much the refund offset amount is (the amount of debt owed), and the agency (including its contact information) that will receive the money.

Can I Contest the Debt?

Yes, you can contest but not through the IRS. If you don’t believe the debt is yours, you can contest it. In these instances, it’s ideal to have documentation to support your claims and patience since your tax refund will likely be delayed while the Government reviews your claims. You should contact the agency that is receiving your refund offset, since they are the ones claiming that you owe a debt. Only contact the IRS if the refund amount on your IRS records is different than the refund amount shown on the offset notice.

What Happens to the Rest of My Refund?

According to the IRS, your remaining refund will be paid to you via check or direct deposit.

If you have questions or would like a consultation about your specific tax situation, contact us online or give us a call at (800) 790-1507.