If an individual owes money to the federal government (including taxes) and fails to pay on time, the amount owed becomes an overdue debt. The IRS can leverage the Treasury Offset Program (TOP) to collect a tax debt by taking money from federal payments, like a tax refund, made to delinquent taxpayers. Typically, the TOP holds back money from the payment in a process referred to as “administrative offset” or “offsetting the payment.”
What Is the Treasury Offset Program (TOP)?
As the name suggests, the Treasury Offset Program (TOP) is a program used by the federal government to hold back tax credits, federal income tax refunds, and any other federal payment program to offset outstanding debts owed by taxpayers and other debtors. For example, if the federal government makes payments such as social security payments or tax refunds, the TOP can withhold that money to pay an outstanding tax debt that a taxpayer owes the IRS.
Who Runs the Treasury Offset Program?
The Bureau of the Fiscal Service (BFS) is in charge of the Treasury Offset Program. It is an independent agency running separate operations from the larger Treasury Department.
What’s the Difference Between the TOP and IRS?
The main difference between the TOP and IRS lies in the fact that they are two separate Department of the Treasury agencies. The other difference is in their responsibilities. While the IRS manages taxes, the TOP manages the collection of unpaid debts for the government. Federal agencies who lend out loans to individuals and businesses report the debt to the TOP when the debtor becomes delinquent.
Am I at Risk of an Offset If I Have a Federal Tax Debt and Owe the IRS?
The short answer to this question is YES. If you owe the IRS taxes, the agency can report the unpaid tax due to the TOP. Other agencies that can report delinquent debts to the TOP are:
- The Securities and Exchange Commission (SEC)
- State Child Support Services
- The Department of Education for Federal Student Loans
How Do I Know If Have a Tax Refund Offset?
The IRS notifies you first before offsetting your tax refund. The agency sends a notice of intent to offset your tax debt and informs you about your rights and payment options. This notice is sent 60 days before the IRS sends the debt to TOP. If you ignore the IRS notices or fail to work out an IRS payment plan, the IRS will inform BFS about your delinquent tax debt.
The BFS will also send you another notice stating your tax debt is now in the TOP database and that your tax refund will be offset. The notice also provides ways to contact the agency and resolve your tax issue.
Once your tax refund has been offset, you will receive another notice from BFS informing you about the agency or creditor that will receive the offset, your debt amount, and how much tax refund you would have otherwise received.
Are Tax Refund Offsets Reduced for Financial Hardship?
A tax refund offset is not reduced for financial hardship. If you are going through a financial challenge due to circumstances outside your control, such as the COVID-19 pandemic, it is advisable to contact the IRS and discuss your available options.
How Can I Settle My Federal Tax Debt so I Won’t Lose My Tax Refund?
Tax debt is undeniably one of the worst types of debts you can have and settling it with IRS should be your top priority as the IRS is often willing to setup a payment plan that works in your favor. If you have received notice from the TOP about their intent to take all or part of your tax refund to offset your outstanding tax debt, here are the best IRS Fresh Start Program tax debt relief options to settle your back taxes:
- Installment Agreement (IRS Payment Plan): With an IRS Payment Plan, you can select a short-term payment plan that lasts 3 months or a long-term monthly payment plan (installment agreement) that lasts 72 to 84 months. You’ll have to pay the full tax owed within this period.
- Offer in Compromise: An OIC is an offer you submit to the IRS to resolve your tax debt for less than what you owe. Once accepted, the IRS lowers your tax due.
- Hardship Status (“Currently Not Collectible”): CNC exempts you from having to make immediate payments. It also temporarily stops the IRS from levying your assets and income until your financial situation improves.
How Can Wiztax Help?
If you owe back taxes to the IRS and need help, Wiztax will put together a solution plan to help you. Call us today at (866) 568-4593 to learn more, or start here. We promise you will save thousands in fees – and there is no fee for your initial evaluation.
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