Why You May Not Have Received Your Full Tax Refund
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When you prepare your tax return for filing to the IRS, many taxpayers likely end up calculating a tax refund. This happens when, after taking into account all deductions and tax credits, you have ended up overpaying your tax obligation. The government then owes you the extra money back, which comes in the form of a tax refund. The average refund amount is $3,200, but not every taxpayer who is owed that amount will receive it. Why?
It is possible for your refund to be garnished by the Department of the Treasury Bureau of the Fiscal Service’s (BFS) Treasury Offset Program (TOP) to pay off any outstanding debt you may have to various government agencies. This practice is called a Tax Refund Offset. Keep in mind that a Tax Refund Offset is different from the IRS using your refund to pay your outstanding tax balance. The IRS is not involved in the Treasury Offset Program.
The BFS can be notified by creditor agencies if you have outstanding delinquent debt. Such debt includes child and spousal support, state income tax, federally insured student loans, defaulted SBA loans, and unemployment compensation benefits for erroneous payments.
When your refund is being taken for these purposes, you will be notified by the creditor agency in a letter at least 60 days (65 for student loans) before the debt is referred to BFS. If you receive this kind of letter, hope is not lost. You will still have the opportunity to pay the debt off completely or enter a repayment agreement. You could also request a review if you believe the debt amount is incorrect or you should not owe it at all, but you will need to provide evidence.
If the status on your tax return was married filing jointly, and your spouse owes a debt to government agencies, you can get out of paying your spouse’s debt with your refund. By filing Form 8379, Injured Spouse Allocation, you can allocate you and your spouse’s income and deductions separately to determine the refund amount to be paid directly to you.
It is not ideal to overpay the government in taxes just to have that refund seized for other debt. To avoid a situation like this, it’s best to engage in proactive tax planning. This way, you can avoid surprises and make smart financial decisions. For the right guidance on your tax planning journey, reach out to XQ CPA’s tax professionals. We would love to help you.
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Want to pay less taxes? Read XQ CPA's official tax planning guidebook! How to Grow Your Wealth Through Tax Planning.
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