Can a Hospital Intercept Tax Refunds?

by Cynthia Gomez ; Updated September 11, 2015

The bill for a hospital visit, however brief, may be enough to send you back to the emergency room, especially if you don’t have the money to pay for it. If you’re expecting a tax refund, you may fear that the hospital you owe money to will intercept your check from Uncle Sam to satisfy the outstanding balance. Understand your rights to avoid unpleasant surprises at tax time.

Who Can Intercept Your Refund?

Generally, only the government can intercept your federal tax return. For instance, the Department of Education, a government agency, can take money out of your return if you’ve defaulted on student loans backed by Uncle Sam. And your state’s department of revenue can intercept your federal tax refund to satisfy outstanding state taxes. This means that money will be taken directly out of your refund, and you’ll receive only any leftover funds not needed to satisfy government debts.

Garnishment vs. Interception

While the hospital you owe money to can’t directly intercept a tax refund, that doesn’t mean it can’t get its hands on your refund. Like any other bill collector, it can get a judgment against you in court for the outstanding bill. Then, it can request that the court seize your bank accounts so that it can collect on the debt. Assuming that you’ve had your tax refund direct-deposited into your bank account or that you personally deposited your check from Uncle Sam into your account prior to the seizure order, the money from your tax return will be in your account and there for the taking.

Beware Refund-Anticipation Loans

Around tax time, the hospital’s collection department or a collection agency that purchased the hospital debt may contact you recommending that you use a specific tax preparation agency and take out a refund-anticipation loan to settle the hospital debt, having the money from the RAL direct-deposited into a bank account owned by the hospital or collection agency. It’s a bad idea because 1) you will likely pay more to have the tax preparation agency do your taxes than you’d pay if you did them on your own; 2) interest on the loan gets skimmed off your refund, and 3) if the IRS declines your return but the RAL has already gone out, you’ll owe the tax preparation agency.

Settling the Debt

To avoid the possibility of having your tax return garnished by a seizure order on your bank accounts or to end the collection calls, there are two things you can do. If your hospital stay was recent (within three months), find out if you qualify for Medicaid or Medicare or another government program to help with medical bills. Your hospital bill might be covered retroactively. You may also contact the hospital administrator to see if you qualify for a free care or charity care program; most nonprofit hospitals have these.

About the Author

Cynthia Gomez has been writing and editing professionally for more than a decade. She is currently an editor at a major publishing company, where she works on various trade journals. Gomez also spent many years working as a newspaper reporter. She holds a bachelor's degree in journalism from Northeastern University.