It has long been the case that if you owe money, your federal income tax refund can be seized to satisfy your debt. Examples of federal debts that might trigger offsets include federal income tax delinquencies and student loan defaults. States can ask the Internal Revenue Service (IRS) to intercept, or offset, federal tax refunds for state tax obligations or money owed to state agencies: this includes the state’s child support enforcement office’s authority to collect on child support arrears.

In the Food, Conservation, and Energy Act of 2008, the government gave itself the right to chase taxpayers for old debts indefinitely. And the easiest way to do it is through an offset. It’s 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.

How does an offset typically work?

  1. If you owe money to a government agency, the agency is supposed to give you notice and allow you to resolve or dispute your debt. If you don’t reach a resolution, the agency can send the information about your debt to TOP. With respect to child support, individual state child support agencies submit your info, including the amount of past-due support through the Office of Child Support Enforcement (OCSE) to Treasury. You will then receive a Pre-Offset Notice that shows the amount of past-due support you owe, and information about how to contest the debt amount.
  2. Your name and the amount owed is input into the TOP database.
  3. If you are entitled to funds from the federal government (like a tax refund check), TOP searches the database.
  4. If your name pops up, your payment is offset by all or part of the amount you owe to pay your debt. The actual amount that Treasury deducts from your tax refund may differ from the amount on the Pre-Offset Notice: the state updates the debt amount regularly, but may not issue a new notice each time the debt amount changes. 
  5. After the offset, Treasury will mail a Notice of Offset to you explaining that all or part of your federal tax refund has been intercepted because of the support debt.
  6. The remainder of the check after the offset, if any, is sent to you (the person who owed the debt).

So what happens to the money that was intercepted or offset? It does not automatically get delivered to the person who is owed the child support.This is a popular misconception and one that has confused folks with respect to the stimulus checks. When the refund (or stimulus check) is intercepted, it is not simply mailed or deposited to the person who is owed child support. What happens is that the state that submitted the case typically receives money from the offset within two to three weeks. The money is then disbursed to the proper recipient (like the custodial parent). But if the offset is from a jointly filed tax return, the state may hold the funds for up to six months before it’s distributed.

What else can be seized under the offset program? TOP can also authorize the seizure of your wages (including military pay), your retirement, contractor/vendor payments, travel advances and reimbursements, certain federal benefit payments including Social Security benefits (but not Supplemental Security Income), Railroad Retirement benefits (but not tier 2), and Black Lung part B benefits. TOP also has a catch-all that allows them to collect from federal payments that are otherwise not exempt by law or by an action of the Treasury.

How does this apply to my economic impact payment (EIP), or stimulus check? The CARES Act made clear that the only reason that a stimulus check might be offset was for past-due child support. Your stimulus check may not be seized for any other debt, including back taxes.

How much of my stimulus check can be seized? Your entire stimulus check can be offset, up to the amount of your child support debt.

What about if you’ve lost my job or have another financial hardship? There is no reduction or other exception available, even for economic hardship.

What if you file a joint tax return? Typically, if your share of your tax refund as shown on your joint return was, or is expected to be, applied against your spouse’s past-due federal debts (including student loans), state taxes, or support payments, you are considered to be an injured spouse. This typically happens when the tax ID number of the person responsible for the tax liability triggers an offset of the entire refund. If you are entitled to injured spouse (not to be confused with innocent spouse) relief, you may be able to get your share of the tax refund released to you.

Is it always an even split? Your share is determined by a formula: it’s not necessarily a 50/50 split. An allocation is made as if you and your spouse each filed a separate tax return instead of a joint tax return. That means each of you must allocate your own wages, self-employment income and expenses (and self-employment tax), and credits such as education credits to the extent possible on separate forms. Items that are commingled, such as interest earned in a joint bank account, would be divided equally. The IRS uses the allocation to determine which portion of the refund, if any, would be due to an injured spouse.

Does the same rule apply to stimulus checks? The same relief is available for those whose stimulus check is impacted by a spouse who owes child support debt. You can file Form 8379, Injured Spouse Allocation (downloads as a PDF), with the IRS.

I don’t agree with this: who can I call? If you have concerns about the status of a debt or an offset, you can call the TOP Call Center at 1.800.304.3107. Don’t call IRS since IRS can’t reverse an offset or give you information about the debt.

While TOP can answer some questions, they can’t make arrangements for you to pay off your debt, tell you when the obligation was alleged to have been incurred, or even tell you how much you owe. TOP can only give you the contact information for the federal or state agency attempting to collect the debt.

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Author

Kelly Erb is a tax attorney and tax writer.

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