Can Tax Refunds Be Garnished Over Past Due Debts?

Posted on May 3, 2017 at 12:00pm by
Can tax refunds be garnished?

Many people who recently filed their tax returns will receive tax refunds. However, those who have past-due government debts may see some or all of their tax refunds garnished. Federal and state governments can offset tax refunds to pay back debts. Common reasons filers see are subjected to a tax refund offset include:

  • Past-due income taxes take priority over all other types of debts owed to the government. Tax refund garnishments are used to offset these debts first.
  • Defaulted federal student loan debts are a very common reason people have their refunds garnished. These debts can be delinquent, but once they default they can be garnished from tax refunds.
  • The Federal Tax Refund Offset Program can take tax refunds from filers who owe past-due child support payments. This program is a collaboration between the Office of Child Support Enforcement and the IRS.
  • Tax refunds are garnished for debts owed to state governments. This can include state income taxes.

The Treasury Department’s Financial Management Service (FMS) is responsible for issuing tax refunds and conducting the offset program. FMS will send notices to filers warning their refunds will be offset months before tax time. This allows filers to appeal the decision with the creditor before their tax refunds can be garnished. However, it is important to appeal the decision as soon as possible.

Are There Ways to Stop a Tax Refund Offset?

Married couples filing joint taxes also have options for saving their tax returns from being garnished. An injured spouse claim will allow one spouse to keep a portion of his or her refund. However, there are eligibility requirements for this option. There may be other options to halt or limit the effects of a garnishment.

Depending on the circumstances, it may be possible to discharge past-due income tax debts in bankruptcy. The Kansas City bankruptcy attorneys at The Sader Law Firm can help debtors look at possible options.

Tags: ,