When you owe debt to a creditor or government agency, your federal tax refund may be garnished. It all depends on how far the creditor is willing to go to seek payment for the debt. The garnishment of a tax refund is referred to as an "offset," because the refund offsets the balance you owe to a creditor. If an offset exists, you have the option to dispute it.
Non-Government Debt
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For a creditor to take your federal tax refund, he must notify the IRS of the court order to garnish your wages. The IRS sends a notification via postal mail that your refund is pending garnishment. If you do not receive an IRS notification, contact the IRS at 800-829-1954 to determine whether or not a creditor is requesting an offset for your refund. You may also contact the creditor directly to determine whether a request was submitted to offset your refund.
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Government Debt
If you owe federal or state back taxes, are in arrears in child support or have a delinquent student loan, the federal government can offset your tax refund. All government offsets are handled through the Financial Management Service, a division of the U.S. Treasury Department. Once a government agency reports your delinquent debt, Financial Management Service verifies the debt through creditor agencies. If the debt is legitimate, your refund is held through "TOP," the U.S. Treasury Offset Program.
TOP Call Center
If your refund is held through TOP, Financial Management Service is required to notify you through postal mail of the garnishment. The notification includes the name of the agency requesting garnishment of your refund as well as contact information for that agency. If you do not have a notification letter, you can still find out whether or not your federal tax refund is pending garnishment by calling the TOP call center at 800-304-3107.
Disputing Offset
If you fear a tax refund offset because of your spouse's debt, take action as soon as possible. Complete IRS Form 8379 or to protect your half of the refund. If you have prior payment arrangements with a creditor, and are honoring the payment arrangements, you can also take action by challenging the offset. Challenge the offset if the debt is paid off or illegitimate. To challenge the offset, notify the IRS in writing that you are disputing the offset. Indicate the reason for your dispute. The IRS will arrange a hearing to determine whether or not the offset remains in effect.