Your state can take your federal tax refund for one of four reasons. Delinquent state taxes is one reason. The others are delinquent child support, unemployment compensation paid by mistake or fraudulently, and debt owed to federal agencies, including student loans. To get money from your refund, the state has to request it from the Internal Revenue Service via its Treasury Offset Program, or TOP, which is run by the Treasury Department's Bureau of Fiscal Service.
Will Your Refund Be Affected?
If your tax debt is a little more than your refund, the state may not bother with the TOP. The IRS doesn't take any more than you owe out of the refund, but it does charge the states a fee for each TOP request; it was $17 in 2011. If your refund is less than your debt, the government waives the TOP fee. In any case, before anything happens, you'll receive a certified, return-receipt-requested notice from the state, sent 60 days before the state sends a request to the TOP. Sixty days gives you time to contact the state first.
The Federal Notice
The Bureau of Fiscal Service will send you a notice if your refund is actually subject to the offset -- that's what the seizure is called. The notice will tell you the original refund amount, how much money was taken and which state agency requested the offset, along with the agency's name and address. If you don't want to wait for the state or federal notice, you can ask the state whether they've requested an offset. The BFS won't give you the information directly, but it will tell you which state agency to ask and give you its address and telephone number. The BFS phone number is 800-304-3107.
If the Government Goofs
Even after you've received a federal TOP notice, you must contact the state agency that requested it if you think the offset was a mistake or inappropriate. The federal government processes the TOP, but takes a hands-off approach on the reason for it. The IRS will get involved, however, if the starting refund on your federal offset notice is different from the refund on your tax return. The IRS also will get involved if the offset was applied to a joint return in which one spouse was liable for the delinquency and the other was not.
The Injured Spouse
If you've had money taken through TOP but only your spouse was delinquent on state taxes, you can get your share of the refund back by filing IRS Form 8379, called the Injured Spouse Allocation. You also can prevent your share from being taken in the first place by sending in the 8379 form with your joint tax return. You simply include form 8379 in your joint return and write "injured spouse" in the top left corner of the first page of the joint return.
- IRS.gov: Topic 203 - Refund Offsets for Unpaid Child Support, Certain Federal and State Debts, and Unemployment Compensation Debts
- IRS.gov: Tax Refunds May Be Applied to Offset Certain Debts
- IRS.gov: Treasury Offset Program Unemployment Insurance Compensation Debts
- National Association of State Auditors, Comptrollers and Treasurers: Treasury Offset Program -- Your State’s Key to Maximizing Delinq uent Debt Collections
- Treasury.gov: Offsets Matter -- States Recover Nearly $500 Million of Tax Debt in 2013 Tax Season
Sarah Brumley has written extensively on business and health-industry topics since 1995. Her work has appeared in publications ranging from Funk & Wagnall's yearbooks to "Medical Economics," a magazine for physicians. She holds a master's degree in finance from New York University.