Can Courts Seize Your Tax Refund?
Courts have a wide array of tools for recovering debts, but a court’s abilities may vary somewhat from state-to-state. Though courts cannot typically seize federal tax refunds, certain courts and enforcement agencies may garnish tax overpayments to recover outstanding balances. In addition, the ability of courts to seize state tax refunds varies considerably from one state to the next.
Other People Are Reading
-
Seizing Entities
-
According to the tax website Tax Forum Info, only three entities have the ability to seize a taxpayer’s tax refund in the absence of special circumstances. Tax Forum Info notes that the federal government may seize a refund to recover outstanding tax debts or compensate any monies otherwise owed to the government. The U.S. Department of Education may also seize a tax refund when a taxpayer defaults on a federally insured student loan. Finally, state governments may seize a federal refund to cover unpaid state taxes or state insured debts. Each of these entities must notify taxpayers when seizing a refund.
Creditors and Lawsuits
-
Tax Forum Info notes that state and local courts cannot typically seize a federal tax refund, but judgments may still force a debtor to surrender both state and local refunds. The State of Michigan issued a small claims court pamphlet in June 2011 that further elaborated how a party who wins a judgment may enforce collection by seizing a debtor’s assets. Because the Internal Revenue Service often sends tax refunds in the form of an electronic deposit to the recipient’s bank account, a court’s order to seize the debtor’s assets may include the tax refund as a portion of the total account balance.
-
Bankruptcy
-
Though courts typically do not directly seize a federal tax refund to repay creditors or small claims litigants, bankruptcy courts may commandeer an IRS refund in certain bankruptcy cases. According to the bankruptcy website Arizona Bankruptcy Relief, a Chapter 13 bankruptcy case requires the debtor to use all discretionary income to repay some or all of the outstanding debt. As a provision of Chapter 13 bankruptcy cases, the court trustee may seize the debtor’s IRS refund to repay creditors. Arizona Bankruptcy Relief notes that the court typically does not require debtors who file bankruptcy under Chapter 7 to surrender federal tax refunds.
Considerations
-
The Internal Revenue Service issues specific guidelines that govern when courts may seize federal tax refunds, but these rules only apply at the federal level. Courts may have considerably greater flexibility in garnishing state tax refunds, and state revenue agency regulations may vary significantly from state to state. In many states, enforcement agencies may seize tax refunds to cover unpaid child support payments and, according to the state of Washington, some states arrange the use of federal refunds to pay child support obligations directly from the IRS.
-
References
- Photo Credit Zedcor Wholly Owned/PhotoObjects.net/Getty Images
