The U.S. Department of the Treasury might pay it for you, with or without your consent. This process is called a “tax offset,” and it’s perfectly legal. Even worse, the Treasury can continue to seize your federal refunds until your debt is paid if the total of what you owe is greater than your refund each year.
The Treasury Offset Program
The federal Treasury Offset Program (TOP) is the force behind tax offsets. It authorizes the government to intercept a taxpayer’s refund to pay off certain outstanding debts. TOP is run by the Bureau of Fiscal Service (BFS), a division of the Department of the Treasury. Not coincidentally, this is the same agency that issues your tax refund. TOP doesn’t go on a hunt to dig up everyone’s unsettled debts. Certain agencies to which you owe money can report to the program if you’ve gone 90 days without making a payment, provided that they’ve personally notified you first of the outstanding debt and they’ve informed you of your rights and options for settling it.
What Debts Can Trigger an Offset?
Your credit card lender, bank, auto lender, or mortgage lender can’t go running to TOP for collection purposes. Offsets are reserved for loans that are either considered to serve the public good or owed to the government. They include but aren’t limited to:
Federal student loans State tax debts Child support Unemployment compensation debts
How an Offset Happens
You’ll receive a notification first if the BFS has a current mailing address for you. You should receive a Notice of Intent to Offset, letting you know that you won’t be receiving some or all of your tax refund this year. The notice will identify the agency or creditor that will receive your refund. It will tell you how much of a refund you would have received and your debt amount. It will also state how much of a refund, if any, you can expect to receive after the offset. The BFS will then subtract the money from your refund, send it to the party you owe, and let the IRS know that this has been done.
What To Do If You Receive a Notice
The notice you receive will also include contact information for the agency to which you owe the money. You have a right to dispute the debt, but don’t call TOP or the IRS to do so. The IRS says you should take the matter up directly with the agency that submitted your debt and try to work something out with them. The IRS doesn’t have the authority or the necessary information at its disposal to help you, and it doesn’t pay taxpayers their refunds. The BFS does that. And TOP can’t pull the plug on an offset without the consent of the agency who placed it, even if you can prove that you’ve already paid the debt. You have no choice but to work it out with the agency that imposed the offset. Otherwise, you can pay off the debt in question, but you only have 60 days after you receive the notice to do so. Visit the government’s debt payment website, call 888-826-3127, or send payment with proof that you made it to the Department of the Treasury, P.O. Box 979101, St. Louis, MO 63197-9000.
If the Debt Is a Federal Student Loan
You have another option if the debt in question is a student loan. You can request a review of the debt from the U.S. Department of Education. You have 65 days to request a review after you’ve received notice of the offset. You can dispute the debt, but your defenses will be limited. Be prepared to submit supporting documentation for your argument. The Department of Education will investigate the situation. You won’t get your refund until it’s resolved, but the lender shouldn’t get the money yet, either.
What If You Don’t Receive a Notice?
The BFS might not have a current mailing address for you. You might have requested that your refund be directly deposited to your bank account, then you might have moved without filing a change of address with the post office. You can contact TOP at 800-304-3107 on business days. You won’t get to speak to a live person, but you can enter information at the prompts, and TOP will then tell you whether any offsets are pending or have been applied to your refund.
