What Is a Tax Refund Offset?

You beat the tax deadline and were lucky enough to get a tax refund!  But what happens when the amount the IRS has deposited into your bank account is less than the amount you expected.

What could have possibly happened?

It’s possible the IRS completely agrees with your refund claim but has still paid you less than the amount you requested.

Now, how can that be?

Your tax refund may have been offset by the Treasury Offset Program.   Tax refund offsets are authorized reductions to tax refunds you’d otherwise be entitled to but which are not paid to you because you owe certain debts.

What Kind of Bills Can Be Offset?

Not every late bill is potentially subject to a tax refund offset.  For example, we’re not talking about late cable bills or delayed car payments.  Such private lenders are unable to directly offset your tax refunds.

However, entities to which you owe other types of debt can do exactly that.   Fortunately, the list of such entities is a short one.

Here are the most common examples of past due debts that can offset (reduce) your income tax refund:

  • Past due child support
  • Federal agency non-tax debts
  • State income tax debt
  • Certain unemployment compensation debts owed to a state

You might notice one type of debt which would seem obviously eligible for a tax refund offset, but is not on this list: past due federal income taxes.

No, it’s not that the IRS is foolishly ignoring its own demands.

Quite the contrary, the IRS will immediately reduce any refund payable to you in order to pay back taxes you owe before any possible offset is considered for other entities you owe.

It’s just that, technically, they just don’t consider such reductions as tax refund offsets.

What to Do If Your Tax Refund Is Offset and You Don’t Know Why

The IRS typically provides you with a notice by mail anytime your tax refund is different than the amount you claim.

In the case of an offset, the notice will list the refund you were eligible for, the amount offset (reduced), the entity to whom the offset money will be sent, and the address and telephone number of that entity.

If you have questions or concerns about the offset, your best bet is to first contact the agency collecting the offset.

Michael Rubin

Author of the bestseller Beyond Paycheck to Paycheck, and the upcoming The Savings Solution, Michael B. Rubin is a Certified Public Accountant (CPA) and a CERTIFIED FINANCIAL PLANNER professional. In addition to his experience providing sophisticated financial advice to affluent clients, Michael has been a key source of information for over a decade to countless others. He speaks passionately about and provides guidance on virtually all personal financial planning topics. Michael has appeared in various media, including radio and TV stations across the country, plus national media such as CNN Money.com, latimes.com, The Wall Street Journal, SmartMoney.com, Chicago Tribune, Financial Advisor Magazine, and Investment News. Prior to founding Total Candor LLC, Michael worked in the personal financial services practices of two of the former "Big Six" accounting firms. Subsequently working for several years as a new venture executive for Toys "R" Us, Inc., he made sure that he never actually grew up. He holds an undergraduate business degree from the Ross School of Business at the University of Michigan and an MBA from the Kellogg School of Management at Northwestern University. Michael lives in New Hampshire with his wife and children.

Comments (2) Leave your comment

  1. I have yet gotten my refund tax back yet. I was inform there was not anything wrong. They just hurting ones like myself.I have my health plan remove becases no money to pay for it.Medine I cannot by,no mony ,the IRS give me a very bad life at time .Someone Help.

  2. Do I have any options if I never received notice of any offset until the day before I was to get my refund deposited and the “wheres my refund” site at IRS.GOV is how I found out about this. I filed bk in 2010, and I know it doesnt discharge student loans, however, isnt it true they cannot be collected on for a certain number of years? I didnt even know I owed Steven Henegar $6000.00 still!

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