Tax Return Garnishment

Tax season is in full swing and some are already receiving their tax refunds, especially if they e-filed. Others expected a tax refund only to discover their refunds have been garnished. You may wonder if this is legal.

The Treasury Offset Program, which is run by the Department of the Treasury, allows state and federal agencies to collect on owed debts by garnishing tax returns. These agencies include;

• IRS – the IRS can garnish your return if you’ve failed to pay for taxes for the previous years. They may garnish up to the full amount of the return depending on how much you owe and have priority over any other federal agency.
• Department of Education – If you have student loans in default and do not make payments for 270-365 days, some or all of your income tax may be garnished to pay off the past due loan. The Department of Education sends notice to the debtor prior to garnishment.
• Department of Treasury- the US Department of Treasury may withhold your return for failure to pay child support, delinquent state income tax, and other federal non-tax debts.
• State agencies – state agencies can garnish state and federal tax returns for outstanding state income taxes, unemployment compensation taxes, etc., but have the lowest priority out of any of the aforementioned federal agencies.

The good news is that federal law only allows state and federal agencies to garnish tax refunds, not individual and private creditors. However, in some states, creditors who have tried to privately settle a debt with you can obtain a court order to freeze your bank account and prevent you from withdrawing money.

If you filed a joint return and you are not responsible for the debt, but you are entitled to a portion of the refund, you may request your portion of the refund by filing Form 8379, Injured Spouse Allocation. You may file Form 8379 with your original joint tax return, with your amended joint tax return, or by itself after you are notified of an offset. If you file a Form 8379 with your joint return, write “INJURED SPOUSE” in the top left corner of the first page of the joint return. The IRS will process your Form 8379 before an offset occurs. If you file Form 8379 with your original or amended joint tax return, it may take 11 weeks for electronically-filed returns or 14 weeks if you file a paper return, to process your return.

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