Can The Government Withhold My Tax Refund If I’m Past Due On Accounts?

Published on May 01, 2014 02:32 pm

If the Internal Revenue Service owes you a tax refund, it can take that as an opportunity to see if you owe debts to other government agencies. If you have debts that are past due to other government agencies, the IRS can use the money that should get refunded to you to pay on those instead.

Refund Garnishment Rules

The IRS won’t just take your tax refund for any reason. It has an established order that it follows when it decides who should get your refund money. First, it uses your refund to pay off other past due federal tax bills. Next, it uses your refund to pay off any child support that is past due. Once that’s done, every other federal government agency gets a crack at it. For instance, if you are delinquent on a federally guaranteed student loan, the IRS could apply your refund to the loan. Before sending you your refund check, the IRS makes one last check – with state governments – to see if you have any past due accounts with them.

Notification Requirements

Your tax refund shouldn’t just vanish into thin air. Any agency with a claim to your refund should have notified you of your past due status long before intercepting your refund. Also, you might have a tax lien or other debt that shows up when you check your credit report. Finally, when the garnishment occurs, the Financial Management Service of the Treasury, which handles adjustments for the IRS, will send you a notice that lets you know where it sent your money.

No Refund for Private Creditors

If you have a past due private account, like a credit card, that creditor has many options to collect. The creditor can report negative items to the credit reporting agencies that show up when you have your credit report checked. Creditors have various ways to try and collect debts that are owed. The Fair Debt Collection Practices Act guards against deceptive, abusive and unfair debt collection practices. What the creditor can’t do is get the government to withhold your tax refund. The IRS doesn’t check with private creditors, so you will get your refund. Tax refunds can be an opportunity to help reorganize your financial life.

Eliminating Refunds

One way of reducing the amount you receive in a tax refund is to adjust your withholding. This could you allow you to spend or save money as your earn it instead of lending it to the government. You can spend as you earn it, instead of lending it to the government interest-free. Doing this won’t solve the underlying problem of the past due debts, though.

Paying bills on time and managing your credit can lead to a healthier credit score—and perhaps even better opportunities in life. While there is no perfect approach to perfect credit, there are a few credit lessons that can benefit you.

About the Author
Solomon Poretsky has been a writer since 1996, with experience in the fields of financial services, real estate and technology. Poretsky holds a Bachelor of Arts in political science from Columbia University.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from, Inc., an Experian company.   © 2014, Inc.  All rights reserved.

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