Do you have a past-due obligation and are worried that a collection agency will take your federal tax refund as a result of it? You’ll be relieved to learn that most collection firms are unable to immediately claim your tax refund from the IRS.
The federal government will only withhold or pay your tax refund to one of your creditors if you have four forms of debt. Past-due federal taxes, state income taxes, child support payments, and monies owed to other federal agencies, such as unpaid federal student loans, are all examples of these debts.
As a result, collection firms hired by your other creditors to collect money from you are unable to intercept or garnish your tax refund.
If you can’t pay your monthly credit card payment and the firm sends your account to a collection agency, for example, you don’t have to worry about your tax refund being garnished.
You should be aware, however, that depending on your state, these collection agencies may have alternative options for collecting payment from you. Collection companies are frequently permitted by state laws to garnish your salary or seize your bank accounts.
A collection agency may be able to seize your tax refund once it has been placed into your bank account. If you request that your tax refund be placed directly into your bank account and a collection agency is able to levy that account, the levy applies to all of your available cash, including your tax refund.
Can your 2020 tax refund be garnished?
However, you may only receive that notice once. Assume you experienced a loan default in January of this year. Even yet, if you don’t deal with the defaulted debt, your refunds for 2021 could be taken without warning. You can’t challenge a tax garnishment because you didn’t receive an offset notice.
Will tax refunds be garnished in 2021?
Sacramento, California — The Franchise Tax Board (FTB) stated today that its income tax refund offset program will be suspended until July 31, 2021.
“Many Californians are still suffering economically as a result of the ongoing public health disaster. “We believe that this suspension will provide more assistance to taxpayers,” said Betty T. Yee, State Controller and FTB Chair.
In accordance with Governor Gavin Newsom’s executive order on March 12, 2020, the FTB has temporarily paused the Interagency Intercept Collection (IIC) Program5’s collection efforts to provide relief to California taxpayers.
6 This means that state tax returns will not be decreased to cover obligations owed to the state for parking tickets, tolls, and other fines. Child support debts are an exception, and they will continue to be collected.
For taxpayers who are having financial difficulties, there are resources accessible. If a taxpayer cannot pay their state taxes in full, they can apply for a payment installment plan7, which includes court-ordered debts. 8 Online, by phone, or by letter, taxpayers can apply for a payment plan.
Furthermore, if a taxpayer suffers a wage garnishment, bank levy, or tax lien, the FTB will work with them to help them. This aid may include amending or releasing a garnishment or levy, placing a hold on the collection account, or accepting an offer in compromise, in addition to payment plans. 9
FTB offers accelerated services to resuscitate suspended corporations and limited liability firms for those who are ready to file and pay the balance immediately or in the near future.
Walk-in service is available in five regional FTB field offices10 by appointment only to help all customers. Customers can schedule an appointment by calling or emailing the field offices. Contact FTB team members by phone11 or live chat12 for extra assistance, or visit our COVID-19 commonly asked questions page. 13
What debt can take your tax refund?
- Unemployment compensation obligations owed to the state (usually, these are debts for (1) compensation paid due to fraud or (2) unpaid contributions to a state fund).
To see if your debt was filed for a tax refund offset, contact the agency with which you have a debt. For an agency address and phone number, call BFS’s TOP call center at the number below. BFS will lower your return as needed to pay off the debt you owe to the agency if your debt meets the filing conditions for offset. Any residual refund after offset is delivered in the form of a cheque or direct deposit, as indicated on the return.
If an offset occurs, BFS will notify you. The original refund amount, your offset amount, the agency receiving the money, and the agency’s address and phone number will all be listed on the notice. Once your refund deadline has past, BFS will notify the IRS of the amount deducted from your refund. If you believe you don’t owe the debt or if the amount deducted from your return is incorrect, you should contact the agency listed on the notice. If the refund amount provided on the BFS offset notice differs from the refund amount shown on your tax return, contact the IRS. If you don’t receive a notice, call the BFS’s TOP call center at 800-304-3107 (or TTY/TDD 866-297-0517) from 7:30 a.m. to 5 p.m. CST, Monday through Friday.
Will I get my tax refund if I owe the IRS?
No, one of the terms of your installment arrangement is that any refund (or overpayment) owed to you would be applied automatically to the taxes you owe. Continue paying your installment agreement payments as usual because your return will not be applied to your normal monthly payment.
Unless you owe certain other past-due amounts, such as state income tax, child support, a student loan, or other federal nontax obligations, which are offset against any refund, you’ll receive a refund of the excess if your refund exceeds your total balance due on all outstanding tax liabilities, including accruals. You can contact the Bureau of the Fiscal Service for further information on these non-IRS refund offsets.
What can the IRS take your refund for?
If you owe federal or state back taxes, the IRS may confiscate any or all of your refund. It can also take your return if you don’t pay your child support or student loan debts on time. You can contact the IRS if you believe an error has been made.
How do I know if the IRS will garnish my refund?
Without prior notification, the Financial Management Service (FMS) of the Department of Treasury can offset any overdue federal or government debt against your refund. Typically, the offset is used for:
As these procedures are launched by the government, we are unable to help or give any information about refund offsets. For more information, please contact:
- To learn out if your return was reduced due to an offset, call the FMS at 1-800-304-3107.
- If you believe your refund was reduced in error, contact the IRS Taxpayer Advocate Service at 1-877-777-4778 (or visit www.irs.gov/advocate). The service is completely free.
A link to more information regarding offsets and the steps you must follow is provided below. I hope this has been of assistance!
How much of your tax refund can be garnished?
In most cases, debt collectors are unable to intercept or garnish your tax refund. Creditors and debt collectors can’t take your income tax refund directly from Uncle Sam, even if you fail on credit cards. They can, however, seize your bank account or garnish your earnings. The good news is that it isn’t as simple as it appears.
Debt collection agencies must first file a lawsuit against you in order to garnish your wages or seize your bank account. The court will issue a judgment against you if you lose the lawsuit or simply do not challenge it. In that instance, the collection agency can levy your bank account or garnish your earnings.
If the collecting agency decides to levy your bank account, everything in it, including your tax refund, is subject to the levy.
When a debt collector secures a court-issued writ of garnishment against you, they can take a percentage of your salary to pay off the obligation. Your tax refund is included in this.
The court issues a writ of garnishment to the collection agency, which must strictly adhere to the order in order to collect money from you. They usually do.
Don’t be concerned. There is yet hope. When a debt collector intercepts your tax refund, you have two options. Let’s talk about them for a minute.
Check if the interception is within legal limits:
Only 25% of your discretionary income can be withheld under federal law. You can take the matter to the local court if debt collectors garnish more than 25% of your income. Government entities, such as the IRS, can withhold your tax refund without regard to percentages, but they can’t garnish your wages without breaking federal and state law. If they do, you can file a legal challenge to the garnishment. Just make sure you have a copy of your bank statements and paychecks, as well as any other supporting documentation.
Apply for hardship relief:
If tax refund garnishment is preventing you from covering your basic family expenses, apply for hardship relief, which bans debt collectors, the IRS, or other government agencies from collecting your refund.
Does IRS use collection agencies?
The IRS collaborates with private collection companies to assist taxpayers with past-due tax debts. These organizations assist taxpayers in resolving their tax debts.
Can my tax refund be offset during Covid 19?
During COVID-19, would TOP continue to offset federal and state payments for federal nontax and state debts? TOP will continue to collect any certified delinquent federal nontax and state bills from all eligible payments during this time.
Who took my tax refund?
Call 1-800-304-3107 to see if you had an FMS offset that affected your tax refund. You may also want to contact the Department of Revenue in your state.
For refund questions, go to http://www.irs.gov/Refunds/Tax-Season-Refund-Frequently-Asked-Questions.
If you owe past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or certain federal nontax debts, such as student loans, you may be able to use all or part of your return to pay the past-due amount (offset). The IRS creates offsets for federal taxes. The Bureau of Fiscal Services (BFS) of the Treasury Department handles all other offsets (Formerly the Financial Management Service or FMS). The IRS will send you a notice if you have federal tax offsets. BFS will send you a notice for all additional offsets. Contact the agency to whom you owe the debt to see if you have an offset or if you have any questions about it. For additional information on refund offsets, see Tax Topic 203.
Another reason your refund amount may differ is if the IRS made adjustments to your tax return that impacted the amount of your refund. In this scenario, you will receive a letter from us informing you of the change.
How Long Can IRS collect back taxes?
The IRS cannot pursue you indefinitely, and taxpayers have some reprieve from the IRS collections division’s pursuit of an IRS balance due thanks to the IRS Reform and Restructuring Act of 1998. In general, the IRS has ten years from the date of assessment to collect a liability under IRC 6502.
The IRS can no longer try to collect on an IRS balance owed after the 10-year period, or statute of limitations, has passed. There are a few things to keep in mind concerning the 10-year rule.
To begin with, the Act is carefully worded to read: 10 years from the date of assessment. The assessment date is either April 15 of the year in which the taxes are due or the date on which the return is actually submitted, whichever comes first.
This can signify a number of things. First, filing your return before April 15 will not lessen the IRS’s statute of limitations. Second, there is a harsh penalty for late filing because the 10-year period does not begin until your return is actually filed.
Failure to file a return or attempting to elude the IRS will not absolve you of responsibility.
Next, if you file an amended return or if the IRS has filed a replacement return on your behalf and you file a return to rectify it, the assessment date may change. Furthermore, the statute of limitations does not apply to attempting to collect on an IRS sum due if you attempted to conceal income or filed a fake income tax return.
You should be aware that in some circumstances, the 10-year statute of limitations for collecting an IRS sum due can be extended. Bankruptcy, requesting a Collection Due Process hearing, asking for an Offer in Compromise, spending significant periods of time outside of the United States, requesting a Taxpayer Assistance Order from the Taxpayer Advocate, and IRS litigation can all extend the statute of limitations.
In addition, if the collections statute is about to expire, the IRS can sue you in federal court for a judgment against you, which has its own time restriction. In general, this is seen as a somewhat extreme move, and the IRS rarely wastes time or money suing taxpayers in federal court unless the liability is in the millions of dollars.
How do I pay off my debt to the IRS?
You owe more than the indicated amount when you owe tax debt. On the amount owed, the IRS will assess penalties and interest. As a result, the debt becomes more greater and more difficult to repay. Under certain circumstances, though, you may be able to reduce penalties and interest. You can request a complete or partial waiver of the penalties, resulting in a lesser overall balance due. If the IRS declines your request to have penalties removed from your account, you can file a formal appeal. The key to dealing with fines and interest is to deal with them as soon as possible before they build further.
