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Taxes from A to Z: O is for Offset

March 17, 2011 · 13 comments

If you owe money to the federal government, your federal income tax refund can be seized to satisfy your debt. This is often referred to as “offset” since the seizures are part of the Treasury Offset Program (TOP); the program is administered by Financial Management Service, a branch of the U.S. Department of Treasury. Examples of debts that might trigger offsets include federal income tax delinquencies and student loan defaults.

Seizures don’t just apply to federal debts. Under TOP, states may enter into agreements with the IRS to intercept, or offset, federal tax refunds for state tax obligations or money owed to state agencies. This includes not only state tax delinquencies but matters such as child support arrears.

What’s supposed to happen is that you are notified in advance of any offset action to be taken. That doesn’t always happen that way and occasionally, taxpayers are surprised come tax time. It’s even more confusing this year for some taxpayers now that the IRS has stopped issuing those debt indicators to third parties. If you have concerns about the status of your debt or a potential seizure, you can call the TOP Call Center at 1.800.304.3107. They can’t make arrangements for you to pay off your debt or tell you how much you owe but they can tell you the best number to call (sometimes, that’s half the battle).

As we discussed on Tuesday, sometimes an offset can affect a refund due to a taxpayer who files a joint return when the taxpayer’s spouse owes a debt. If you’re one of those affected, you’ll need to file a federal form 8379 (downloads a pdf). It’s not a quick form to process. The IRS suggests on the instructions that you should expect to wait 8 weeks if you file the form after your joint return or 14 weeks if you file it together with your joint return (the number shrinks to 11 weeks if you efile). So, be patient.

As a side note, in addition to your federal income tax refund, TOP may also attempt to collect by attaching your wages, including military pay; retirement pay; and certain federal benefit payments, such as Social Security. TOP also has a catch all which allows them to collect from federal payments that are otherwise not exempt by law or by action of the Secretary of the Treasury.

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{ 3 comments… read them below or add one }

1 Joe March 18, 2011 at 3:37 am

You can also call the IRS to see if you have a debt before you file your return. If it is a tax debt, they can tell you how much it is and even set you up on a installment agreement if your refund isn’t enough to pay it off. If it is a debt outside the IRS, they will refer you to Financial Management Services (FMS). All the IRS will have is an indicator that there is a debt. They don’t know who it is.

2 PENNY FORD March 26, 2011 at 6:21 am

Is there any other way to find out if you get “extra” money back without having to re file? I couldn’t tell you my tax papers for that year even are. So, could you please let me know how to go about finding that out?

Thank you very much for your help it is appreciated.

3 christine mullens March 26, 2011 at 2:23 pm

My daughter’s ex-husband is allowed to claim their one child every other year even though he does not pay total support and still owes her over $3,000. How can this be fair and legal?

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