What Debts Can the IRS Offset With My Tax Refund?
When the IRS “offsets” your refund, they withhold it for one or more reasons. According to the Taxpayer Advocate Service, or TAS, tax refunds may be offset or delayed due to tax debts and other issues:
- Problems with your name, address, or other contact information needed to issue the refund.
- You have missing or unfiled tax returns for previous tax years.
- Your tax return is being audited or reviewed by the IRS.
- You chose to apply the total amount of a refund to next year’s estimated taxes.
- You have unpaid IRS tax debt or unpaid debts with other state or federal agencies, like child support, unemployment overpayment, and student loans.
How Do I Find Out Why the IRS Offset My Tax Refund and How Much of My Refund They Withheld?
If you file a tax return online using IRS e-file, you can check your refund status 24 hours after you filed. Note that status updates for refunds happen once a day.
To access information about your refund online, you will need to know the exact amount of your refund, your filing status (single, head of household, married filing separately, or married filing jointly), and your SSN.
If the IRS offsets your tax refund, or increase or decreases the amount for any reason, the IRS will mail a notice that explains why our refund amount changed and how much they withheld from or added to the original amount.
Checking your refund status online will also show whether the IRS offset your refund, how much they took, and why.
Will the IRS Ever Reverse a Refund Offset for Economic Hardship If I Have Past Due Federal Taxes?
The Offset Bypass Refund, or OBR, allows the IRS to issue a refund instead of offsetting it due to certain economic hardship conditions affecting a taxpayer.
If a taxpayer has past due taxes and can prove they are suffering an extreme financial hardship (i.e., an inability to pay for basic living expenses), they may be able to take advantage of an OBR refund when a tax refund would have otherwise been offset or withheld to settle an IRS tax debt.
IRS Example of an OBR
The IRS provides an example of a taxpayer who may be eligible for OBR. An individual has a $1,000 refund but they owe the IRS $500 in back taxes. However, they have been served an eviction notice and have asked for a hardship refund of $700 to stop it.
If they qualify for an OBR refund, they will receive $700 of their refund, instead of $500, to avoid being evicted. The IRS will then apply the remaining $300 to offset part of the $500 tax debt.
Can I File Injured Spouse Allocation or Innocent Spouse Relief to Get My Offset Tax Refund Back?
Yes, in some cases you can request IRS relief for injured or innocent spouse to get your part of an offset tax refund back.
IRS Form 8379
Form 8379 for Injured Spouse Allocation is filed by one spouse if both spouses have filed a joint tax return which resulted in the IRS issuing a joint refund for overpayment. Part of this overpayment must have been offset due to the other spouse’s tax debt to claim injured spouse.
Often times, the injured spouse will be able to recoup their portion of an offset amount of a joint refund.
IRS Form 8857
Form 8857 for Innocent Spouse Relief applies to one spouse when the other spouse has taxes due from self-employment or employment income.
Innocent spouse can help a spouse avoid paying the other spouse’s tax debt. However, one spouse cannot claim relief or exemption from taxes they owe the IRS on their own income, business taxes, and household employment taxes.
A spouse may be an innocent spouse if:
- They filed a joint tax return with their spouse.
- They were not aware of the spouse’s tax debt.
- Their return has an offset refund.
- They reside in a community property state (Nevada, Louisiana, Arizona, Wisconsin, Texas, Washington, Idaho, California, and New Mexico).
How Do I Dispute a Refund Offset When I Know I Don’t Owe the IRS?
If you do not agree with the IRS tax refund offset decision and have the proof you need to show that you do not owe the IRS or other applicable state or federal agency, you can appeal the decision by contacting the Taxpayer Advocate Service.
In some cases, you may not be able to appeal an IRS refund offset. For example, if the notice you received from the IRS does not mention your option to appeal, you likely won’t be able to dispute the offset.
Need more help? You can start online by answering 6 simple questions. You can also call us at 866-568-4593.
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