Can They Take My Income Tax Refund for a Debt Owed to a Debt Collection Agency?

by Kathryn Hatter
You might avoid losing your income tax refund if you don't have the funds deposited electronically.

A debt in collection can come back to bite you if the collection agency sues you to get its money. A civil judgment could result in garnishment of a state tax refund, depending on your state’s laws. Know your state laws and the parameters of the judgment so you know how it will affect your income tax refund.

Writ of Garnishment

If the collection agency sues you in a civil court, it's asking the court to intervene and issue a judgment to satisfy the debt. A writ of garnishment gives the collection agency the right to a portion of your earnings and other sources of income, such as tax refunds. The court sends the writ of garnishment to the applicable agencies involved, and the agencies have to follow the order to extract the money ordered by the court.

Federal Income Tax Refund

The Internal Revenue Service only will allow income tax refund garnishment for specific types of debt. If you owe back federal or state taxes or child support, the IRS would allow a garnishment of your income tax refund. If you owe money to other federal agencies, such as for a federal student loan, the IRS also would uphold a garnishment of your income tax refund.

State Income Tax Refund

Individual state revenue services may allow state income tax refund garnishment for a debt in collection. After the collection agencies sues you and receives a judgment from the court, the collection agency can petition the state revenue service for your income tax refund, if permissible and applicable. Contact your individual state revenue service to learn state laws regarding income tax refund interceptions.

Bank Levy

Collection agencies often receive a judgment that includes a levy on bank accounts. If you arrange to have your federal income tax refund electronically deposited into a bank account and the collection agency has a levy on that account, you could lose your income tax refund. The levy would give the collection agency access to all funds in the account, which would enable the agency to take your refund when it hits the account.

About the Author

Kathryn Hatter is a veteran home-school educator, as well as an accomplished gardener, quilter, crocheter, cook, decorator and digital graphics creator. As a regular contributor to Natural News, many of Hatter's Internet publications focus on natural health and parenting. Hatter has also had publication on home improvement websites such as Redbeacon.

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