Although the IRS website was careful to note that the rebate checks would be withheld to satisfy federal obligations, checks are being seized by states in order to satisfy past due state income tax obligations.
The seizures are part of the Treasury Offset Program (TOP). Under TOP, states may enter into agreements with the IRS to intercept, or offset, federal tax refunds for state tax obligations. The program is administered by Financial Management Service, a branch of the U.S. Department of Treasury.
As state coffers continue to shrink, states are taking advantage of TOP to satisfy outstanding liabilities. Nationally, states have taken 123,407 checks totaling $47.9 million with the states of New York, Georgia and Missouri have benefitted the most.
For more information about seizures and liabilities, see my prior post on the subject.
(As a side note, the regulations define the payments to be seized as “refunds” and further note that they are an “overpayment of Federal income tax payments” though I have admittedly not read the statute, just the regs. Strictly speaking, the rebates are not refunds and are not overpayments. Does anyone else see a potential issue here?)
It is technically a “refundable credit” against tax. They are being sent after people have paid their taxes – and thus reducing their net tax liability to zero.
Zero tax liability plus a $600 refundable credit = $600 Refund.
Ah, thanks for the clarification.
And here I’ve just been calling it “stupid policy” 😉