There’s nothing more
frustrating than expecting a certain amount in your tax refund and then having
it be less when it finally arrives. And not less than you hoped, but less than you expected once you filed. There are many reasons
this could happen; let’s look at them.
There are certain cases where
if you owe the government or have outstanding dept, your refund can be offset
or used to pay the debt. This could be the case if you owe delinquent federal
taxes, federal agency non-tax debts (as with HUD
loans, Student loans, VA loans),
state income taxes and other obligations. It could also come into play if you
have state unemployment compensation claims due for various reasons, including
fraudulent unemployment compensation filings and/or delinquent child support.
The Treasury Department’s
Financial Management Service (FMS) issues federal income tax refund checks, but
it has also been authorized by Congress to conduct the Treasury Offset Program,
which allows FMS to withhold all or part of your refund to pay certain
delinquent debts from your federal income tax refund.
The debts are collected in
the following order:
- Federal taxes of all types
- Past-due child support
- Federal agency non-tax debts (such as student loans)
- State debts other than past due child support (such as
state taxes, local taxes, or overdue library fines)
Anytime your federal refund
is completely used or reduced by FMS, you will receive a letter explaining the
offset. If your refund has been
reduced or delayed, you can contact FMS at 800-304-3107 for additional
information.
If your refund is more than
your debt, you usually receive the balance of your refund in the same payment
manner you requested when you filed your return, whether it be via direct
deposit or mailed check.
For married taxpayers who
file a joint return, where only one spouse is responsible for a debt in FMS
collection, the IRS does have a process in place to allow a partial refund to
be processed for the spouse who doesn’t owe the debt. To receive your share of
a refund that has been reported to FMS for collection, you should complete IRS Form
8379, Injured Spouse Allocation, which allows the “non-debtor” taxpayer
to provide information to the IRS, who will then determine the allocation
necessary for the tax refund. The form can be filed by itself after a tax
refund has been reduced or eliminated in the Offset Program, or it can be
completed and attached to the tax return when the return is filed, if you know
of the offset in advance.
If you are under an Installment
Agreement Request with the IRS, FMS will intercept any refund you may have and
apply it to the principal balance of your tax debt. The refund offset is not
considered part of your monthly payments; you should continue to make your
payments in full on the appointed date as agreed upon in the original
application.
The most important thing to
remember if your refund is less than anticipated is to act quickly to understand
exactly what happened so that you can ensure any amounts removed or offset to settle other past due debts are accurate. If you have any
questions, call your local Jackson Hewitt Tax Pro.