4 Types of Debts Subject to Income Tax Refund Offsets

Tax refunds are something everyone enjoys receiving, especially those who have significant debts. However, Congress created the Treasury Offset Program, which authorizes the Treasury Department’s Financial Management Service (FMS) to reduce your tax refund and pay the offset to another party. Here are four situations in which the government will attempt to do this:

  1. Past-due child support
  2. Unpaid state income tax
  3. Unemployment compensation benefits owed to a state. This can happen either because someone received unemployment compensation fraudulently, or someone didn’t contribute to an unemployment compensation fund and was not paid fraudulently.
  4. Federal agency non-tax debts

After the offset is taken, a check with the remaining amount will be issued to you.

Number four, the federal agency non-tax debts, almost always includes delinquencies or defaults on federally guaranteed or direct student loans from the Department of Education. Often one hears of the horror stories of collection agencies hunting down student loan debtors and then neglecting to tell them about deferment or income-based repayment options that would reduce the amount the collection agency would receive. That said, the Department of Education also refers defaulted loans to the FMS for collections.

If you believe a federal agency like the Department of Education submitted a debt to the FMS for a tax offset, you can contact the agency and ask if it did so. The FMS is obligated to inform you that it is taking an offset, and it must tell you: the original refund amount, the offset, the agency receiving the offset, and the agency’s contact information. If you are the spouse of someone whose refund was subject to an offset and filed jointly, you can fill out Form 8379 to claim the portion of the refund to which you are entitled.

You will also have an option to challenge the offset, and if you contact the agency and claim a financial hardship, you might be able to stop the offset as well. As always, talking to an experienced Las Vegas bankruptcy lawyer can help you sort these matters out, and filing bankruptcy might help prevent the offset as well.

For more questions about bankruptcy in Las Vegas, please feel free to contact an experienced Freedom Law Firm Las Vegas bankruptcy attorney for a free initial consultation. Call us at 1-702-803-9251 to set up your free consultation.

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