Depending on the laws of your state, private creditors may have access to those funds. However, it's best to get all the facts before you start to panic.
Garnishing your refund
If you’re expecting a tax refund but have concerns about creditors garnishing it, you may be worrying too much. Federal law allows only state and federal government agencies (not individual or private creditors) to take your refund as payment toward a debt. However,
- once you deposit the refund into your bank account, these rules no longer apply
- depending on the laws of your state, private creditors may have access to those funds
Treasury Offset Program
The Treasury Offset Program (TOP) is administered by the United States Department of Treasury’s Financial Management Service (FMS). It allows federal and state government agencies to collect outstanding debts owed to them by garnishing, or offsetting, your debt with your tax refund.
Government agencies frequently garnish federal income tax refunds since they are the most common federal payments. The TOP is the only way your refund can be garnished; private creditors such as credit card companies don’t have access to your tax refund. Moreover, only certain types of government debts are eligible for TOP. These include:
- past-due court-ordered child support payments
- outstanding debts with federal agencies other than the Internal Revenue Service
- past-due state income taxes
- unemployment compensation you must pay back
IRS priority
Before any other federal or state agency can garnish your tax refund, you need to be current on your federal income tax payments. This is because the outstanding taxes you owe to the IRS always need to be paid first from available tax refunds.
For example, if you owe taxes for a prior year, but expect a tax refund in the current year, the federal government doesn’t view this as an overpayment to which non-IRS government agencies have access.
- In this scenario, the IRS applies the current tax refund to your past-due tax balance.
- In other words, the IRS pays itself first, before making your tax refunds available for garnishment by other government agencies.
Child support payments
If you overpay your income taxes and have an amount eligible for a refund, the state agency that governs your child support order has first claim to that refund if your support payments are unpaid. The state can continue to garnish tax refunds each year until all child support payment obligations are satisfied.
Nontax federal debts
Any federal agency you owe has the next shot at garnishing your tax refund.
For example, let's say you will get a $5,000 tax refund, and
- You're current with your federal income tax obligations.
- You have $3,000 in past-due federal student loan payments.
- You owe $2,000 in past-due child support.
The state is eligible to take $2,000 for your past-due child support, and the Department of Education can take the remaining $3,000 to pay for your past-due student loan payments.
State debts
State government agencies have the lowest priority when it comes to garnishing IRS refunds. But, if you’re required to return unemployment compensation payments, or you have outstanding state income tax debts, your federal refund can be garnished to repay these obligations as well.
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FAQs
Garnishing your refund
Who can garnish my federal tax refund? ›
The IRS can garnish refunds to satisfy unpaid federal taxes, while state tax agencies can do the same for unpaid state taxes.
Can a debt collector take my tax refund? ›
Could a creditor in California even seek to intercept someone's tax return? As a general rule, the only debts that can lead to the state intercepting someone's federal or state tax refund are government debts.
How to find out if your income tax refund will be garnished? ›
Not all debts are subject to a tax refund offset. To determine whether an offset will occur on a debt owed (other than federal tax), contact BFS's TOP call center at 800-304-3107 (800-877-8339 for TTY/TDD help).
How much of your income can the IRS garnish? ›
Generally, the IRS will take 25 to 50% of your disposable income. Disposable income is the amount left after legally required deductions such as taxes and Social Security (FICA). There are exceptions to this rule, however, that could protect some or all of your earnings from wage garnishment.
Can someone take my federal tax refund? ›
Your tax return may show you're due a refund from the IRS. However, if you owe a federal tax debt from a prior tax year, or a debt to another federal agency, or certain debts under state law, the IRS may keep (offset) some or all your tax refund to pay your debt.
What kind of debt can the IRS take your refund for? ›
There are only four types of debt for which the federal government will withhold your tax refund or send it to one of your creditors. These debts include past-due federal taxes, state income taxes, child support payments and amounts you owe to other federal agencies, such as federal student loans you fail to pay.
Should I pay off debt with my tax refund? ›
It can save you money on interest
In general, using your tax refund to pay down debt, especially higher interest credit card debt, makes sense from a long-term perspective as it will help save you from incurring future interest charges.
Will I receive my tax refund if I owe back taxes? ›
If you owe back taxes, the IRS will take all your refunds to pay your tax bill, until it's paid off. The IRS will take your refund even if you're in a payment plan (called an installment agreement).
Can debt collectors take money from your bank account without permission? ›
Collectors Taking Money from Your Wages, Bank Account, or Benefits. Debt collectors can only take money from your paycheck, bank account, or benefits—which is called garnishment—if they have already sued you and a court entered a judgment against you for the amount of money you owe.
Though the 37-month COVID-19 payment pause ended Oct. 1, 2023, the U.S. Department of Education will delay tax refund offsets until at least September 2024. If you've defaulted on student loans, though, you'll need to enroll in the Fresh Start Program before Sept. 30, 2024, to avoid future refund offsets.
How do I stop a tax refund garnishment? ›
How to stop garnishments or other levies. The most effective way to stop garnishments or other levies is to pay in full. After you have paid, contact the number listed on your order. Have your payroll, bank, or other payor fax number prior to calling.
Will I be notified if my taxes are garnished? ›
If an individual owes money to the federal government because of a delinquent debt, the Treasury Department can offset that individual's federal payment or withhold the entire amount to satisfy the debt. The debtor is notified in advance of any offset action to be taken.
What bank account can the IRS not touch? ›
Any bank accounts that are under the taxpayer's name can be levied by the IRS. This includes institutional accounts, corporate and business accounts, and individual accounts. Accounts that are not under the taxpayer's name cannot be used by the IRS in a levy. Levies can impact property and assets other than accounts.
Can IRS see your bank account? ›
The Short Answer: Yes. Share: The IRS probably already knows about many of your financial accounts, and the IRS can get information on how much is there. But, in reality, the IRS rarely digs deeper into your bank and financial accounts unless you're being audited or the IRS is collecting back taxes from you.
How long does it take for the IRS to start garnishing wages? ›
The IRS Laws on the Wage Garnishment Process
The last one is an “intent of notice to levy.” After sending this notice, the IRS identifies the most convenient way to get the funds from you, and in most cases, that is a wage garnishment. The garnishment starts 30 days after you receive this notice.
Who can offset my federal tax refund? ›
The Bureau of the Fiscal Service (BFS), a bureau of the U.S. Department of Treasury, administers TOP. We partner with TOP to offset federal payments and tax refunds in order to collect delinquent state income tax obligations.
How many notices does the IRS send before levy? ›
A recorded federal tax lien establishes the government's right to your assets over other creditors. The IRS waits to record most tax liens until after it has sent all five notices in the collection notice stream and hasn't received payment. You'll want to avoid a Notice of Federal Tax Lien.
