Tax Refund Offsets Pay Unpaid Debts 

What happens if I cannot afford to pay my taxes up front? 

Did you know that if you can’t pay your taxes in full, the IRS will work with you? This is definitely helpful for some of our clients. Past due debts, like taxes owed, can reduce your refund though. There is a program called The Treasury Offset Program which can use part,  or sometimes all if necessary, of your federal returns to settle certain unpaid debts. This includes unpaid individual shared responsibility payments. 

Here are five facts that you should know about tax refund offsets: 

1. Bureau of the Fiscal Service

The Department of Treasury’s Bureau of the Fiscal Service, or BFS, runs the Treasury Offset Program.

2. Offsets to Pay Certain Debts

 The BFS may also use part or all of your tax refund to pay certain other debts such as:
  • Federal tax debts 
  • Federal agency debts, like a delinquent student loan
  • State income tax obligations
  • Past-due child and spousal support 
  • Certain unemployment compensation debts owed to a state 

3. Notify by Mail

 The BFS will mail you a notice if it offsets any part of your refund to pay your debt. The notice will list the original refund and offset amount. It will also include the agency that received the offset payment and the agency’s contact information.

4. How to Dispute Offset

 If you wish to dispute the offset, you should contact the agency that received the offset payment. Only contact the IRS is your offset payment was applied to a federal tax debt.

5. Injured Spouse Allocation

You may be entitled to part or the entire offset if you filed a joint tax return with your spouse. This rule applies if your spouse is solely responsible for the debt. To get your part of the refund, file Form 8379, Injured Spouse Allocation. 

Health Care Law: Refund Offsets and the Individual Shared Responsibility Payment

While the law prohibits the IRS from using liens or levies to collect any individual shared responsibility payment, if you owe a shared responsibility payment, the IRS may offset your refund against that liability.