The federal government has the authority to seize tax refunds and other payments to satisfy certain debts, including old tax bills. In 2008, the rules limiting the time to seize those funds were rewritten, allowing the government to chase taxpayers for old debts indefinitely. The provision, officially codified in Title 31, Section 3716 of the federal statutes, gives the government the right to collect debts through the Treasury Offset Program (TOP), which recovered over $3.8 billion in federal and state delinquent debts in fiscal year 2023.
If a debt is not paid, it can be turned over to TOP, which collects the debt by holding back money from a federal payment, such as a tax refund. The debt must be at least 120 days overdue before being sent to TOP, with the debtor having the opportunity to pay or dispute the debt before the offset occurs. Once the debt is entered into the database, payments made by federal agencies can be offset, and the debtor will receive a letter explaining the amount withheld from the payment. The debt remains in the TOP database until it is paid in full or the original agency stops collection.
Not all debts can be collected through TOP, as they must be $25 or more, delinquent, and legally enforceable. Examples of federal debts that might trigger offsets include federal income tax delinquencies and student loan defaults. Private debts unrelated to a government agency, such as credit card debt, cannot be seized through TOP. The seizure amounts can vary, with federal income tax refunds able to be seized up to 100% for various debts, including child support and state income tax.
In the past, taxpayers could predict potential seizure of their tax refunds in advance, but changes in IRS policy have made it more difficult to anticipate offsets. The removal of debt indicators means taxpayers may not receive advance notice of an offset, requiring them to check the status of their tax refunds through tools like “Where’s My Refund?” on IRS.gov. If an offset occurs, taxpayers who did not receive proper notice may find out too late, especially if the alleged debt is old and forgotten.
Taxpayers who do not pay their debt or take steps to resolve it may face other collection actions by the IRS, such as liens and levies. It is essential for taxpayers to respond to IRS notices and dispute debts they believe are incorrect. The TOP Call Center can provide contact information for federal or state agencies attempting to collect a debt. By understanding the procedures and options available, taxpayers can potentially resolve their debts before facing more severe consequences.
