4 Reasons the IRS Can Seize Your Income Tax Refund Money for Debt

Kira Botkin

seize money If you’ve recently filed your taxes and were expecting a nice fat refund check, you may be shocked if you check the tax refund status and discover that it’s no longer coming.

Believe it or not, there are several situations in which the IRS can rightfully seize your refund. Therefore, before crying foul and blaming the government for making a terrible mistake, consider whether any of the numerous reasons for tax refund seizure could apply to you.

Reasons for Tax Refund Seizure

1. You Have Past Tax Debt
If you have an outstanding tax debt from previous years, the IRS can just take your expected refund and apply it to the old debt without so much as a thank you note. It does not matter whether the debt is from last year or more than a decade ago – the IRS has a long memory, and will take the owed funds whenever the discrepancy is discovered.

Keep in mind, it does not matter whether the money you owe is for federal or state taxes. If you’re behind on your state tax bill, the state government can either seize your state refund, or apply to the IRS to seize money from your federal refund.

2. You Owe Child Support
The Federal Government will eventually notice if you are behind on child support payments. In fact, federal and state agencies can place levies on your refund to help pay your outstanding child support debt.

Don’t make the mistake of thinking you’re home free when your son or daughter reaches 18 years of age. If you are still delinquent, this can continue even past the time that your child no longer qualifies for support.

3. You’re in Bankruptcy
Paying down debt can be a smart way to use your tax refund money, and if you’re currently going through bankruptcy, your bankruptcy trustee might make that decision for you.

Under a Chapter 13 bankruptcy, the bankruptcy trustee can request that the court take your refund and apply it to your debts. Chapter 7 filers may lose their refund, but can exempt some of it from seizure.

Once your bankruptcy is fully discharged, your refunds will be safe. If you think this could happen to you, check with your bankruptcy trustee.

4. You’ve Defaulted on Student Loans
Part of the reason that student loans have much better interest rates than other loans is because they’re nearly impossible to escape. If you get old enough, the government can even take payments out of your Social Security check to cover them. Therefore, it shouldn’t come as a shock that the IRS can turn your refund over to the Department of Education to pay for any loans you’ve defaulted on.

Married Filing Jointly

You should be aware that if you file jointly with your spouse and he or she is in a situation where his or her tax refund will be seized, yours will be seized as well. Luckily, there are a couple of things you can do to hold on to your share of the refund:

File Separately. If you file your taxes as married filing separately, you don’t have to worry about this issue. Your refund will be safe and your spouse must bear the burden of his or her financial issues alone.
Injured Spouse Allocation. If you want to avoid having your part of the refund seized, you can file for “injured spouse relief” in order to make your case to the IRS that you paid your own share of taxes and didn’t have anything to do with the situation. You must have your own income and have made tax payments or had taxes withheld from that income, and you must be expecting a refund of at least some of those taxes that you paid on your own income.

To apply for injured spouse relief and determine how much you should get back, you’ll need to complete Form 8379, “Injured Spouse Allocation.” Also, don’t confuse injured spouse relief with innocent spouse relief, which comes into play when the other spouse has falsified a tax return, under-reported income, is guilty of tax evasion or fraud, or committed other acts that might have civil penalties to both spouses if a joint return was filed.

What Your Refund Can’t Be Seized for

Even if the above situations don’t apply to you, the possibility of having your refund seized might still be a concern if you’re experiencing financial difficulties. You may be relieved to know that there are certain instances that do not warrant seizure.

The IRS cannot seize your refund for the following:

Credit Card or Mortgage Debt (Not Related to Bankruptcy). Only federal agencies can take your refund. However, if your bank account has a lien on it, a creditor might be able to swoop in and take money out if it’s notified you received a hefty deposit.
Collection Agencies. No collection agency or creditor can intercept your refund without a lien, or add on to any existing tax debt. If a collection agency tries to convince you that they’re from the IRS, don’t bite. The IRS does use collection agencies, but only a select few, who will be happy to prove that they work for the IRS.
Overdrawn Checking Accounts and Bank Overages. The bank can’t take your refund; however, it is likely that if a refund lands in the troubled account, the bank will apply any penalties or bank overage fees against it before you can withdraw the money.

Holding The Refund

There are several reasons that the IRS may hold your refund. It isn’t taking your refund (not yet, anyway), but the IRS can keep it from being provided to you. In each of these situations, the IRS should contact you by mail to provide more details and a plan for resolution.

You Didn’t File Taxes In a Previous Year. If you didn’t file your taxes in a prior year, the IRS may hold your refund until you prove that you don’t have a tax debt from that year. The only way you can get the IRS to release your refund is if you go ahead and file for that year, or send a letter explaining why you didn’t file, and request more time.
Your Spouse Filed an Injured Spouse Allocation Form. If your spouse filed a Form 8379 as detailed above, the IRS may put your refund on hold until it can process all the paperwork and sort out who should get what.
You’re Currently on a Payment Plan for Back Taxes. If you weren’t able to pay your taxes in full in a previous year and had to contact the IRS to work out a payment plan, the IRS may hold your refund until it has determined whether the money should be put toward your payment plan.

Final Word

If you have financial troubles, whether they’re in the form of an unpaid tax bill, late child support, bankruptcy, or student loan debt you’ve defaulted on, make sure you understand the possible consequences. You can also check with the IRS to see if it’s planning to seize your tax refund.

Remember, all of the above reasons for tax refund seizure will occur at the federal level before your refund is processed – asking for the refund to be sent to another account or put on a tax refund debit card won’t help. And if your spouse is the reason for your refund woes, you can put in an application for injured spouse relief, even if his or her refund has already been seized. If your refund is seized ultimately, you can at least rest assured that a portion of your debt has been paid.

Has your tax refund ever been seized? If so, what were the circumstances?

Published or updated: March 1, 2013
Categories: Money Management, Taxes

Kira Botkin
Kira is a longtime blogger and serial entrepreneur who enjoys gardening, garage sales, and finding stray animals. She lives in Columbus, Ohio, where football is a distinct season, and by day runs a research study for people with multiple sclerosis. She hopes that the MoneyCrashers team can help you achieve your goals and live a great life.

Learn more About Money Crashers - including co-founders Andrew Schrage and Gyutae Park.

Comments

Steve7874

if my wife and i are delnqunt on property taxes and are in forclosure but have refund coming from irs can that money be taken by state/we have allready begun the chapte 13 proces
- Kira Botkin
  
  Yes, the bankruptcy trustee can ask that your refund be applied towards your debts, but unless your property taxes are the only debt you are discharging through chapter 13, those are two separate processes (the refund seizure and being delinquent on property taxes, that is.) If you have other debts the refund can be seized and put towards those debts. You should ask your lawyer.
  - Rachtyree
    
    If you default on a student loan I know they can take it but how long of non-payment does it usually take? I would like to get on a payment schedule and if I do that before I file will they still take the money from my income taxes?
    - Kira Botkin
      
      You would have to contact your student loan provider to find out how long you can go without paying before they consider you to be in default.
TAMICA

IF YOU HAVE AN OLD CAR LOAN AND THEY HAVE SUED YOU AND START TAKEN GARNISHMENTS FROM YOUR CHECK CAN THE IRS TAKE MY REFUND? CAN I FIND OUT IF ITS A JUDGEMENT ON THAT TO HOLD MY REFUND
- Kira Botkin
  
  The IRS wouldn’t take your refund directly – they will only do that for instances where you owe money to the federal government.
Kaye_tobi

I “graduated” from college in sept. of 2010, which means i had until March 2011 to start paying back my student loans, however i was unemployed and had just had a baby in March 2011 so i was granted a deferrment for another 6 months, i was just recently granted another deferrment until March of 2013, my husband and i were wondering if the IRS can still take our refund since we have the deferrment or if we should be worried.
- Kira Botkin
  
  If you’re currently on deferment, you shouldn’t also simultaneously be defaulted on your loans. It doesn’t sound like you were in default on your loans at any point.
http://twitter.com/femischo Fe Mischo

I just checked mine and my husbands bank account and it showed we were getting back less than half of what we were expecting. I called the FMS (?) and his ssn checked out…so I did mine. it said I owed over $5000 to the Dept. of Edu. I only went to college in 2006 and due to it being crappy and unaccredited I quit. When I talked to my financial aid person she advised me not to worry that my loans had been canceled. in 2007 when my husband and I were going in for a loan the school loans showed up. We went back to the school and talked to the head of the financial aid dept. She said that the money was sent back to sallie mae. I returned all of my books, never took out supplies and left before the end of the 2nd quarter. The program ended the quarter after I left because it was shotty and no one could get hired from it. I was fully assured that it would be taken care of and never heard another then about it until now. 6 years later and with no notice, BAM they take all of my husbands hard earned military pay! I am a stay at home mom of 3 kids. we are by no means reach. I researched a bit and by the code 34 cfr parts 30.20 to 30.33 stating that I was to receive prior notice before any of this took place. I have not heard a peep since I left the school in 2006. What are my rights, what can I do to get our money back?
- Kira Botkin
  
  Sorry but this is way beyond what a writer on the internet can help you with. You should contact Legal Aid.
Kfields4591

Will they take my refund if I owe money to unemployment
for overpayment?
- Jojo
  
  No they can’t. But they can and will take your state refund.
- Kira Botkin
  
  Unemployment is administered by the states, so the state can’t take your federal refund, but they will probably take your state refund.
jesse herrera

will the irs hold if your behind on your alimony?
or does it just apply to child support?
- Kira Botkin
  
  Depending on your state, it is possible. Child support is more strongly enforced than alimony in most jurisdictions though.
Ellebanna

I applied for student loans when I was in college but had stopped payment when I lost my job in 2009 and have been unemployed ever since. I am now married and have a baby. My husband is our only source of income. If my husband files married filing jointly (even though I didn’t have anything to file for) will the federal and state automatically take his refund because of my student loan?
- Kira Botkin
  
  Yes, it is possible, because when you file jointly it’s not HIS refund, it becomes OUR refund. The best course of action would be to call the loan administrators and try to get on a hardship deferral or income sensitive repayment plan.
sam

I filed jointly with husband not realizing i had a balance on my school bill balance due. I am unemployed with a baby and so the income was completely on my husband. Well when i found out that they were taking every penny of it i immediately called and said my husband qualified for a injured spouse claim can anyone. Explain how this works and if my husband will get all of his tax return or partial ? I dont understand how he could be held responsible for my debt that was way before we married
- Kira Botkin
  
  When you file jointly your refund becomes the property of both of you jointly, and the government does not portion out who gets what part of the refund. He isn’t being held responsible for your debt – the government considers a joint refund YOUR property as well as his, so they can seize it for YOUR debt.
  
  As listed above you should fill out the injured spouse form – if you look at the form, question 3 clearly asks about the refund being seized for past debt owed only by your spouse. When you fill out the form you will list what parts of the refund were due to each spouse and if they approve your application he will receive whatever part is due to him. However, keep in mind that you will essentially be re-filing as married filing separately and are going to lose your child tax credit and earned income tax credit, so his refund is going to shrink a lot. Depending on how much that school bill is, it might be worth it to put the larger joint refund towards it anyway.
Dan

I was recently taken to court for the shortfall on a vehicle lease that went to auction and didn’t sell for enough to cover the loan. I currently owe $15,000. Last week they garnished my bank account for the entire $631 that was in it to go towards the debts. I also processed my tax return last week and am expecting a return of $2000 very soon. Can they take that??
- Kira Botkin
  
  What this article is talking about is the refund being seized before it ever hits your bank account – so since the lease company isn’t part of the government, they can’t do that. What they can do is pay a monitoring service that tells them when you have money in your account and then they immediately put in a garnish request to the bank. So if you are able to change how you get your money back, I’d try to get a check or a money card instead of a direct deposit. You might want to look into declaring bankruptcy if this is not a sum of money you’re going to be able to come up with anytime soon.
A&J

My husband and I filed joint, and we knew we owed the IRS from 2010, and used our refund to pay that debt in full. Even after it was paid we were still expecting monies back. After calling the IRS because our refund was held up, they informed him that there was another debt (which they could not determine) that was keeping it held up. My husband (alone) started the chapter 7 bankruptcy, but hasn’t signed anything, (lawyer has been paid) and just recently had given all documents the paralegal needed. We keep calling the lawyers office, but he is either in court, or a meeting, etc etc. We’re not sure if it is the bankruptcy (since he hasn’t actually “filed” or signed anything) or if it is the credit union in which we owe monies to. I’ve been searching around for answers, and awaiting someone from the IRS to contact us, but that could be awhile. Could the credit union grab our refund, even if we secured a lawyer, and without notification. Our lawyer never told us the consequences of filing regarding our refund.
- Kira Botkin
  
  If your husband hasn’t actually filed for bankruptcy, that wouldn’t affect anything. I would guess that some paperwork got crossed since you already owed the IRS something, and so someone put on the hold without knowing you already paid it off. It’s unlikely but possible, depending on the credit union’s status re the government, that they put in a request for a portion of your refund. You need to talk to your lawyer and actually file those bankruptcy papers before much will happen.
jason

This might be a dumb question, can the IRS take money from my refund that was already deposited into my bank account? I owe back child support and just saw that $2100 was taken from my account and I’m not sure who took it?? Its a holiday so everything still says “pending” therefore it doesnt say where the money went to on my account, it just says a a few letters and number where it would normally say “walmart POS purchase”, for example.
- Kira Botkin
  
  The IRS is unlikely to take it after it’s been deposited, but the government can sure as heck garnish your bank account for back child support.
- -A
  
  Contact the child support agency and your bank. It sounds like the child support agency attached a levy to you. A levy will allow them access to your bank accounts, tax returns, holding your passport and potentially your driver’s license. If you do not have a court order stating you are not to be levied… anything over $3,200.00 (I think that’s the dollar amount) is available to the child support agency to take on behalf of arrears. GOOD LUCK!
Jenyka Hayes

Can the IRS take our refund money if we had a car repossessed and might owe the credit union? We just checked on the status of our refund and it says the IRS took all of our refund for a debt but they haven’t said what the debt is or who it’s owed too yet
- Kira Botkin
  
  It’s possible if the credit union is affiliated with a governmental institution.
  - Jenyka Hayes
    
    It’s BECU so I don’t know if they are or not
ashley mead

I looked on the IRS website to check the status of my refund and it said “your refund has been applied to a past due tax credit… does that mean all of it? Furthermore what is this.. ????
- Kira Botkin
  
  It sounds like you have not paid all of the taxes you were supposed to in past years. If it doesn’t have a status that says how much is still being sent to you, they probably did apply all of it towards the old tax debt.
Mark

If the IRS took money from your return, would it show up on the where is my refund section of their website. As of right now it says that my return was accepted and the refund amount is exactly what I expected and I have a date of deposit into my account. Is it safe to assume that they didn’t take anything out of my return?
- SEli
  
  No, it stated that too until today. Beware, they will take it.
- Kira Botkin
  
  In this situation, I wouldn’t count my dollars until they are under my mattress. They could reverse that at any time.
Rebecca

The IRS took almost all of my husband’s refund and there is no reason why! He is in no debt whatsoever except for an old over drawn bank account. Have you ever heard of this? Why are they doing this and what can be done???
- Kira Botkin
  
  You should contact the IRS, they will be able to provide a reason.
Marie

I owe a gym membership. Can they take money out for that???
- Kira Botkin
  
  Not directly from the refund before it hits your bank account, no.
Ross

iI had included past due federal taxes in my chapter 13. I was told by my attorney that this debt would be paid through my plan, Well, the IRS seized my entire refund instead of accepting payments from the trustee !! Is this a common practice ? I was at least expecting to get my return since I thought I had done it right.
- Kira Botkin
  
  Did your bankruptcy fully process already? If it’s not processed yet, they may not know about your bankruptcy plan. Either way you need to contact your attorney.
Tanmustard

We are hoping for a refund from the earned income credit. We filed chapter 13 in 2012. I heard the bankruptcy trustee cannot take the earned income credit but we still owe it’s and we have been making monthly payments. Can they still take our refund?? Our return status shows approved processed and set to be direct deposited this week. Please help with any info!! Thanks in advance
- Kira Botkin
  
  If you owe any back taxes, child support, or student loans, they might, but I believe the trustee has to request the refund be applied. But I wouldn’t count that check till the money’s safe in your bank account (or under your mattress.)
catlyn39

If we are expecting a state refund and are current on our installment agreement payments with the irs, will the state refund go to the irs?
- Kira Botkin
  
  Probably not. Usually the way it works is that federal refunds are taken for federal taxes, and state refunds are taken for state taxes.
Danielle

I know this may sound dumb but, what is the difference between state tax and federal taxes?
- Kira Botkin
  
  You fill out an income tax form and pay income taxes to the state government, and you fill out a different income tax form and pay different taxes to the federal government. The tax money goes into separate pools.
add

My bf claimed me and our two kids i got foodstamps last year didnt bother to update our new address or report his income can they sue him for that.also he owes old cell phone companies can federal take that too?we are under review and im a bit worried
- Kira Botkin
  
  I’m not clear what food stamps have to do with it, but if he filed taxes and claimed you and your children as dependents without actually reporting his income, yes, they will come after him for that. If he had any kind of a regular job, the job would have sent his W-2 to the IRS, and the IRS is going to wonder why he didn’t put that income on his taxes.
  
  The phone companies cannot take his refund but if they have placed a levy on his bank account they could take the money when it comes in. He would have to have been notified about the levy though.
kandi

I filed my income tax return beginning of March. I checked the status of my return and irs STATED would be mailed to me on the 18th. Checked it again last night and it said that the refund was seized for past due child support, school loans or something else. I don’t have any of those but what I’m wondering is I filed Head of house and I didn’t claim my husband this yr like last yr. We are legally seperated and I’am wondering if it might have something to do with the last time I filed married.
- Kira Botkin
  
  Legally separated or not, if you are not divorced you must still file as married. You cannot file as a single head of household if you are still legally married. If he filed his taxes and put down married, the IRS might hold up your return. And if you are still legally married, they could theoretically still have you linked somewhere and be holding up the refund for something that your husband has going on.
smc

If my husband and I file married filing separate, who claims our 3 yrs old daughter as filing separate puts us out on getting the family credit for children
- Kira Botkin
  
  I have not ever seen a specific rule on who gets to claim a child between parents who are married and live together but file separately, as long as you don’t both claim her.
Jack black

I just filed my taxes on tax act and when I was done, I noticed I had typed in all the info from last years w2, my refund amount was like $900, my question is do you think they will go ahead and deposit my refund and work the difference out once I file an ammendment or will I have to file a 1040x before I get my refund, I have a lot of bills is why im so worried I heard 1040x can take like 12 weeks.
- Kira Botkin
  
  You should send in that 1040X. It is likely that they will kick the return back to you since it doesn’t match, but if they don’t, they will almost certainly deposit your refund before the 1040X is processed.
stevo

Im in a payment plan with state. Im getting a federal refund. Will state take federal refund to cover owed state taxes that are in payment plan? Will it happen and can it happen?
- Kira Botkin
  
  It’s very unlikely to happen because federal and state taxes are managed by different agencies who don’t really communicate well. So it can happen, but realistically it won’t as long as you’re current on your payment plan and the state isn’t looking to garnish your bank account.
- HD
  
  It happened to me this year, and I was on a payment plan and current with all payments, and they took all my federal.
http://www.facebook.com/donnasellsri Donna Silva

I made an error on my return and calculated a larger refund than I was entitled. I was going to put 75% towards my next years taxes and have 25% deposited in my checking account. The IRS sent me a letter stating that I would not get a refund and 100% of the corrected refund would be applied to next years taxes. Can I get some of that back…like the same percentage as is the incorrect refund?
http://www.facebook.com/donnasellsri Donna Silva

I made an error on my return and calculated a larger refund than I was entitled. I was going to put 75% towards my next years taxes and have 25% deposited in my checking account. The IRS sent me a letter stating that I would not get a refund and 100% of the corrected refund would be applied to next years taxes. Can I get some of that back…like the same percentage as is the incorrect refund?
- Kira Botkin
  
  If the “corrected” amount is the same or less than 75% of the amount you calculated, then no, probably not. You could try calling the IRS though at 800-829-1040 and see if there is a form you could submit.. but if the amount they’re applying to next year’s taxes is about what you already told them you wanted applied, it seems that they took you at your word at how much in $$ you wanted applied, if not in percentage.
jenny

I filed my taxes on Feb.7th,my expected refund came in, but, went to another Debit card number on Feb.28th. I called the Debit Card Company,which says they sent it back to the IRS on Mar.25th,and that the IRS will be sending it to me in, “paper check “.It is now April 29th.Well,I call the IRS every Fri,and they still haven’t received it.They said its prob in the mail room waiting to be opened.My question is..how long do you think it’ll be until I get my tax refund?As a Single Mother of six children we rely on our taxes to get our main necessities during this time,like clothes,shoes ect.I only make enough to take care of bills.
- Kira Botkin
  
  Unfortunately I really don’t have an answer for you other than to keep calling the IRS. Paper checks from the IRS often take 6-8 weeks to process so it isn’t that surprising that after a month it still hasn’t arrived. If you filed your taxes today and requested a check it would take 6-8 weeks to get that check.
Rosie

My federal taxes were applied to a debt i owed the dept of education because of my student loans, i filed for hardship and provided the documents, one which was an eviction, i was approved to received partial payment of my refund but im still waiting the dept of ed knows that i have an eviction my family is about to be thrown out of our place, all the dept of education keep telling me is that its in process,im starting to believe that its all bullshit im just getting the run around how long do i have to wait?does anybody know?