It is always nice to receive a refund after you file your income taxes. You may rely on this money to pay bills or to plan a family vacation. However, if you have certain types of unpaid debts, the IRS can seize your federal or state income tax refund even if it's already garnishing your wages.
Depending on the type of unpaid debt, the IRS can garnish your wages and still take your tax refund.
Garnishment for Unpaid Taxes
If you owe taxes and failed to pay them within the past 10 years, the IRS will collect the debt by garnishing your wages, levying your bank account and intercepting your tax refunds. The law does not require the IRS to obtain a judgment order against you before garnishing your wages or seizing your tax refund. If you owe back taxes, you will receive a demand for payment letter from the IRS. If you fail to respond and do not pay, the IRS will send you a final notice about 30 days before it starts garnishing your wages or your bank account. The IRS will notify you whether all or part of your tax refund is applied to your overdue tax debt.
Unpaid Child Support
The Federal Tax Refund Offset program intercepts tax refunds of noncustodial parents who owe child support payments. The local child support enforcement agencies keep track of this and submit the names of delinquent noncustodial parents to the program. When the government processes the refunds, the taxpayers' information is compared against the list. If an individual's information matches, all or part of his tax refund is applied to the unpaid child support debt. The IRS sends a notice to the individual when his tax refund is seized to offset the debt.
Past-Due Student Loans
If you default on federal student loans and fail to make payments for 270 days, the government will garnish your wages and intercept your federal and state tax refunds to offset your debt. The best way to avoid the offset is to negotiate a repayment schedule and make payments on time. As long as you continue paying off your federal student loans, the IRS will not garnish your paychecks and will not seize your tax refund checks. If the IRS has already taken your tax refund, you may challenge it by contacting the IRS directly or the Student Loan Borrower Assistance program provided by the National Consumer Law Center.
Unpaid Federal Debts
The IRS may intercept your tax refunds if you have other unpaid debts, such as Social Security or unemployment compensation overpayment. An overpayment may occur if you fail to notify the government when you return to work. If you are no longer eligible and continue to receive the benefits, the government will demand that you pay them back. The IRS may seize all or part of your your tax refund to offset the debt balance even if the government is already garnishing your paychecks.
Julianne Russ has been a freelance writer since 2009. She specializes in articles about banking, management, foreign languages and education. She has a Bachelor of Arts in international management from Hamline University in St. Paul, Minn.