What Does a Refund Offset by the Treasury Department Mean?

Failing to pay tax debt can lead to a tax refund offset.
Failing to pay tax debt can lead to a tax refund offset. (Image: tax forms image by Chad McDermott from Fotolia.com)

A refund offset occurs when the United States Treasury Offset Program receives notification that you owe a federal or state debt that you have not paid. Offset usually occurs after the agency has made several good-faith attempts to collect the debt with no luck. You may contact the Treasury Offset Program Call Center to verify whether your refund is scheduled for offset.

Child Support

Your federal taxes will be offset if you owe delinquent child support. If the custodial parent receives Temporary Assistance for Needy Families (TANF) or Medicaid, and you owe delinquent child support, your federal refund will be offset. You must owe $150 for TANF or $500 for Medicaid-only cases to qualify for offset (as of October 2012).

Student Loans

The Treasury Offset Program can offset your federal refund if you default on a student loan. Your loan must be 270 days past due if you made regular payments or 330 days if your payments were sporadic. The Department of Education will issue a refund of your offset if it poses undue hardship. Eviction and high medical expenses are examples of undue hardships.

Federal Tax and Non-Tax Debt

If you have received a notice from the Internal Revenue Service and failed to respond, your taxes may be offset without further notice. Federal tax debt should be paid in full upon receipt of notice. If not, your bill may be referred for offset. Federal non-tax debt such as federal salary and benefit overpayments, grants, fines and penalties are referred for offset once they become 180 days delinquent. The Treasury Offset Program also collects non-tax debt for federal agencies such as the Social Security Administration, Veterans Administration and Small Business Administration. Currently, there are over 140 agencies that report to the Treasury Offset Program.

State Agencies

Your state tax refund may be offset through the Treasury Offset Program if your state participates in the Treasury Offset Program. Currently, 39 state revenue agencies participate in the Treasury Offset Program (see “Resources”). If you owe state taxes or a non-tax state debt such as unemployment, your federal refund may be offset.

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