If you owe state taxes and you’re due a federal refund, the state government can take that check before it hits your bank account. The Treasury Offset Program allows the state to intercept your refund without your permission. Under this program, the state revenue agency enters into an offset agreement with the Internal Revenue Service and the Treasury Department.
The state can intercept your federal income tax refund if you owe back taxes, given certain requirements before doing so are met. That being said, private creditors do not have the right to initiate such garnishments.
Can the State Take Your Federal Tax Return?
To intercept your federal return, the state revenue agency must file an offset claim under the Treasury Refund Offset Program. If you owe state taxes, they will take your federal refund, but certain limitations do apply. The state can file the claim only if your delinquent debt is at least 180 days old and less than 10 years old. The agency must send you a certified letter of its intent to offset your federal refund 60 days prior to filing the claim. If you’re in bankruptcy, the state cannot take your federal return.
Where Does My Refund Show Offsets?
If the state offsets your federal return, the Department of the Treasury must send you a Notice of Payment Offset. The notice states the offset type and amount, the state revenue agency the payment is being sent to, and contact information in case you have questions. The amount of time it takes for the offset to show on your state tax account varies. For instance, in California it takes at least two weeks.
Avoiding an Offset
If you cannot pay your state tax debt in full, you might be able to make installment payments to the revenue agency. Making installment payments does not stop the agency from offsetting your balance with your federal refund, however. To avoid the state intercepting your refund, you must pay the balance in full, including interest and penalties, up to 60 days from the date of the Notice of Intent to Offset. If you’re protected by bankruptcy laws, submit evidence of the bankruptcy, such as filing date, case number and the name of the bankruptcy court.
Recovering Your Refund Portion
If you filed a joint return and your refund is being offset because of a debt your spouse owes, you can probably recover your share by filing IRS Form 8379. You must include identifying information about yourself and your spouse, such as W-2 income and tax withholding. This information helps the IRS figure your – and your spouse’s – individual tax liability and refund. Mail the form to the IRS location where you filed your return. Allow the agency 11 to 14 weeks to process your request if you filed the form with your joint return. If you filed the form after submitting your joint return, give the IRS around eight weeks.
- Department of the Treasury: Questions Most Frequently Asked by the Public
- Minnesota Department of Revenue: Offset Letters
- Connecticut Department of Revenue Services: Refund offset and Treasury Offset Program
- IRS: About Form 8379, Injured Spouse Allocation
- Bureau of the Fiscal Service. "Tax Refund Offset." Accessed May 7, 2020.
- Taxpayer Advocate Service. "Refund Offsets." Accessed May 7, 2020.
- Taxpayer Advocate Service. "Contact Us." Accessed May 7, 2020.
- Student Loan Borrower Assistance. "Tax Refund Offsets." Accessed May 7, 2020.
- IRS. "Frequently Asked Questions / Refund Inquiries." Accessed May 7, 2020.
- Congressional Research Service. "The Child Support Federal Tax Offset of CARES Act Economic Impact Payments." Page 1. Accessed May 7, 2020.
Grace Ferguson has been writing professionally since 2009. With 10 years of experience in employee benefits and payroll administration, Ferguson has written extensively on topics relating to employment and finance. A research writer as well, she has been published in The Sage Encyclopedia and Mission Bell Media.