What is a tax refund offset?
At a glance
- A tax refund offset is when the federal government uses all or part of your federal tax refund to pay back a debt you owe a federal or state agency.
- The Bureau of the Fiscal Service (BFS) manages the Treasury Offset Program (TOP).
- TOP can be used to pay various types of unpaid debt including federal tax debt, child support, SBA or student loan repayments, and unemployment compensation debts can prompt a tax refund offset.
- You will get a notice of intent about the tax offset from the BFS before it occurs.
- Responding promptly to tax offset notices and proactively addressing them helps avoid or minimize offsets.
Consider this scenario: You filed your taxes and think that you’re getting a refund, but when the direct deposit hits, you notice the refund amount you expected doesn’t match what’s deposited into your bank account.
What gives?
A tax refund offset could be the culprit. Your tax refund might have been offset as part of the Treasury Offset Program, where a portion of your tax refund pays for certain tax debts you or your spouse owe.
Offset meaning for taxes: What is a tax offset?
Generally, a tax offset is when the federal government uses all or part of your federal tax refund to pay back a debt you owe. For the purposes of this post, we’ll cover a tax offset.
Tax offsets can also impact Social Security benefit payments or other federal payments.
Take note: A tax offset is different than offsetting your taxes with a deduction or credit. See the comparison table below for details.
File with H&R Block to get your max refund
Treasury Offset Program
Who is responsible for the federal offset program? The Treasury Offset Program (TOP) is a system run by the Bureau of Fiscal Service within the U.S. Department of the Treasury. Congress authorizes agents within this program to help collect overdue debts owed to federal or state agencies.
The Treasury Offset Program may reduce your refund (overpayment) and offset it to pay overdue debts to federal or state agencies. For example, say you’re supposed to get a $1,200 tax refund but owe $500 in unpaid student loans. In this case, TOP might take $500 from your refund to pay that outstanding debt, and you’d get a $700 tax refund back.
What debt can offset your tax refund?
The following circumstances can prompt an IRS tax offset on your refund:
- Department of Housing and Urban Development (HUD) loan repayments
- Federal agency non-tax debts
- Overdue federal tax debts
- Past-due child support money
- Small Business Administration (SBA) loan repayments
- State income tax debt or obligations
- Student direct and guaranteed loan repayments
- Unemployment compensation debts owed to a state (for fraudulent wages paid or unpaid contributions to a state fund)
How to find out why the IRS offset your refund
The Bureau of Fiscal Services will send a notice if they are offsetting your refund. The notice will show:
- The original refund amount
- Your refund offset amount
- The agency receiving the payment
- The address and telephone number of the agency
If you don’t get a notice, you’ll need to call the tax offset number at:
- Bureau of Fiscal Services at 800-304-3107
- Hearing impaired customers may use 800-877-8339
Contact the agency listed on the notice if:
- You believe you don’t owe the debt.
- You’re disputing the offset.
Contact the IRS only if your original refund on the debt offset notice differs from the refund amount on your return.
Can a tax refund offset be reversed?
Generally, you can’t reverse a tax offset once the debt is paid. However, there are limited exceptions to this rule. Here’s when a reversal might be possible:
- Clerical error: If the offset was due to a mistake in paperwork or a clerical error, the IRS may be able to reverse it.
- Injured spouse relief: If the IRS offsets a joint refund for a debt owed by one spouse (and not for a joint tax liability), the non-debtor spouse can apply for injured spouse relief using Form 8379 to get their portion back.
- Offset Bypass Refund (OBR): In situations of significant economic hardship, and when the offset is for a federal tax debt (not state or other debts), the IRS could agree to bypass the offset and issue a partial or full refund. If approved, the IRS issues a refund to you—rather than applying it to the debt—to help with a financial emergency. You must request this before the offset occurs.
How to avoid a tax refund offset
The surest way to avoid a tax refund offset is to pay your debts and taxes on time. See the OBR information above for details.
Differences between refund offset, garnishment, and seizure
Refund offsets aren’t the only way the IRS and other government agencies recapture owed money; wage garnishments and seizures are different debt collection methods. Let’s outline each difference:
1. Tax refund offset
A tax refund offset happens when the government takes money from your tax refund to pay off a debt you owe.
Example: You’re supposed to get a $1,000 tax refund, but the government might take some or all of that refund to pay the debt.
2. Garnishment
A wage garnishment, or wage levy, happens when money is taken directly from your paycheck or bank account to pay a debt.
Example: A court orders your employer to take a portion of your paycheck and send it to the entity owed.
3. Seizure
A seizure occurs when the government or a court takes real property, money, or tangible assets to pay a debt of more than $5,000.
Example: If you owe money to the IRS and don’t pay, they might take your car, sell it and use it to pay off your tax debt.
What if only one spouse is responsible for the owed debt?
The BFS can offset a tax refund even if only one spouse owes the debt and files a joint tax return. However, the spouse who doesn’t owe the debt may be able to protect their portion of the refund. The spouse who doesn’t owe the debt can file an Injured Spouse Claim via Form 8379. When you file this form, the IRS will give back part of the refund that belongs to the spouse who isn’t responsible for the debt.
Note: You’re eligible for Injured Spouse Relief if your share of a joint tax refund was applied to a debt owed solely by your spouse.
You can’t claim it for:
- Business tax returns
- Household employment taxes
- Individual shared responsibility payments
- Trust fund recovery penalties for employment taxes
- Taxes owed on your own income
Can you dispute an offset?
If you think there’s an issue with your tax offset, get in touch with the agency listed on the offset notice you received.
Don’t dispute the IRS offset just because you’re unhappy with it. You’ll need to prove why the offset is a mistake. For example, if the offset is related to a debt you’ve already paid off, or you already set up a tax repayment plan, you can dispute the offset.
Tax offset vs. offsetting taxable income: What’s the difference?
Some people think you can offset taxable income with credits or deductions, but the terms are different. Generally, the government takes money from your refund to pay a debt with tax refund offsets, while offsetting taxable income means lowering the amount of income you get taxed on, so you have a smaller tax bill or larger refund.
Here’s a visual of the differences:
| Feature | Tax refund offset | Offsetting taxable income |
| Purpose | Recoup debts owed to government agencies | Lower your tax liability by reducing your taxable income |
| Timing | Occurs after you file your tax return | Happens as part of filing your tax return |
| Process | The government uses your refund to pay existing debts | Taxpayers claim tax benefits they qualify for |
| Outcome | Reduces your refund amount, or eliminates it entirely | Reduces the income on which taxes are calculated, leading to a lower tax bill or even a refund |
Get help navigating tax refund offsets and IRS notices
Get help if you get an IRS notice about a tax return or account problem—like when the IRS offsets your refund—with H&R Block Tax Audit & Notice Services.
Need help filing your taxes? Whether you choose to file with a tax pro or file with H&R Block Online, you can rest assured that we’ll get you the biggest refund possible.
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