Will the IRS Take My Tax Refund for My Unpaid USDA Mortgage?

The United States government offers numerous assistance programs for qualifying individuals. U.S. Department of Agriculture mortgages provide government-backed loans for rural homes much as the Federal Housing Administration provides homeowner loans for other areas. The U.S.D.A. mortgages require no money down and are 30-year mortgages at a fixed rate. As of February 2011, with profits and property values in decline, some holders of U.S.D.A. mortgages are delinquent on payments. The Internal Revenue Service has authority to hold federal income tax refunds to pay delinquent federal payments and some state payments such as child support and state income taxes.

Debt Collection Improvement Act

The Debt Collection Improvement Act of 1996 centralized government collection of delinquent debt with the U.S. Department of the Treasury and the Financial Management Service. The U.S. Department of the Treasury has developed systems to improve debt collection through income tax refunds during the years since 1996.

How It Works

The Treasury Offset Program compares name and Taxpayer Identification Number or Social Security number of debtors with name and TIN or SSN for federal payments before sending out the payments. If the software finds a match, qualifying indebtedness offsets or reduces the federal payment. This includes a federal income tax payment and a U.S.D.A. mortgage loan. Once you are late on a payment, the agency to which the debt is owed makes an attempt to collect. If payment is not made within 180 days, the regulations require federal agencies to refer debts over 180 days delinquent to the U.S. Department of the Treasury for debt collection. This is the cross-servicing program and includes delinquent loans, misused grant funds and overpayments made by the federal government.

Financial Management Service

The Financial Management Service is a part of the U.S. Department of the Treasury, and it distributes federal funds electronically such as Social Security and federal employee salaries. It also collects debts owed to the United States government. In this dual position, FMS can monitor any government funds you receive and offset the funds by any amounts you owe.

Government Loans and Delinquent Payments

Catch up on payments on federal loans by negotiating with the FMS. State and federal governments add penalties and interest to delinquencies, so it is best to find a money source and make payment quickly. The federal government distributes Social Security payments and can collect money you owe from Social Security and veterans’ benefits as well as your income tax refund. If you do any work with the federal government, your payment may be withheld.


About the Author

Linda Richard has been a legal writer and antiques appraiser for more than 25 years, and has been writing online for more than 12 years. Richard holds a bachelor's degree in English and business administration. She has operated a small business for more than 20 years. She and her husband enjoy remodeling old houses and are currently working on a 1970s home.