How Long Can the IRS Hold Your Tax Refund? The short answer to this question is: indefinitely. If, that is, you owe certain kinds of debts.
Let’s say you are the type of person who always gets a refund. This could be either because you have children and get a child tax credit, you are in college and get education tax credits, you unknowingly overpay taxes throughout the year, or whatever the case may be. You work all year long, and you are looking forward to that potential several thousand dollar check to come in the mail—the reason why you count down the days until tax season. Well, you might actually end up resenting tax season if the IRS ends up holding onto your money indefinitely. Who can take your tax refund? And for what purposes?
Can Creditors Take Your Income Tax Refund?
The Bureau of the Fiscal Service’s (Fiscal Service) Debt Management Services administers the Treasury Offset Program (TOP) in an attempt to recoup debts owed to federal and state agencies. Fiscal Service is the agency that disburses federal payments (including tax refunds). Other agencies can submit delinquent payments to this agency, thus flagging when someone has not paid a debt owed. Information included is the debtor’s name and tax identification number (TIN). Before a federal payment is disbursed to someone, the payment information is compared with debtor information in Fiscal Service’s delinquent debtor database.
If the amount of the tax refund does not cover the full debt, the next tax refund will be used. This is because Fiscal Service maintains information about the delinquent debt in their debtor database in order to offset eligible federal payments until the creditor agency suspends or terminates debt collection or offset activity for the debt.
Who Can Take Your Federal Income Tax Refund?
Now that I’ve got your attention, let’s take a look at the different types of debt that TOP is allowed to withhold tax refunds to satisfy. Debts that count against tax refunds:
- Past Tax Debt (State or Federal): It makes sense that the federal government would want to satisfy past tax debt that is still outstanding before disbursing any refunds that are owed to you.
- Back Child Support: Federal and state agencies can seize your tax refund to help pay your outstanding child support debt, even if the child(ren) in question is/are over 18.
- Certain Types of Debt in a Bankruptcy Filing: Be aware that if you file for a Chapter 13 or Chapter 7 bankruptcy, then the bankruptcy trustee can be requested part of your debt is paid off by seizing your tax refund.
- Defaulted Student Loans: Most years, federal student loan interest rates have outperformed private student loan interest rates. For my own student loans, my one private loan was a staggering 9% interest rate, while all of my federal loans were around 2.25% interest rate. This is because federal student loans basically have to be paid back one way or another (you generally cannot get rid of federal student loan debt in bankruptcy). If you have federal student loans, that means they are backed by the federal government (such as Stafford Loans). As such, if you default on them, your tax refund may be confiscated.
Married Filing Jointly and Filing an Injured Spouse Allocation
If you are married and filing a joint tax return, and if your spouse is the one who owes a debt, then you may be able to get your part of the tax refund. You would be considered an “Injured Spouse”, and need to fill out Form 8379, “Injured Spouse Allocation”. Before filling this form out, make sure you have a case. You need to have your own source of income separate from your spouse, have made tax payments or had taxes withheld from your independent income, and you must be expecting some sort of tax refund.
How to Contact TOP with Questions
After you file your tax return, if your tax refund has been held indefinitely for any reason, then you will receive a letter from the IRS notifying you of what payments were made to which agency (for example, Department of Education for federal student loan defaults, or the federal Office of Child Support Enforcement for back child support pay). You’ll be given the name and address of the agency to whom the offset amount was sent, so be sure to read this carefully and make sure you actually owe the debt. If not, you can contact the particular agency and dispute the validity of the debt. Otherwise, if you have questions regarding the offset of your federal tax refund or the offset of another U.S. government-issued payment you can call the Treasury Offset Program (TOP) Call Center at 1-800-304-3107.