Monday, July 29, 2013

Tax Refunds and Offsets

Have you ever had your tax refund reduced before you even receive it? That unpleasant phenomenon is called an offset. Here is the skinny on what an offset is, why they happen and who decides they will happen. 

Unpaid financial obligations that you incurred in your past can result in the reduction of your tax return in the form of an offset. Some of the debts that can trigger an offset include: unpaid child support, student loans or income taxes due to the state in which you live. During the evaluation of your tax return, the Treasury Department’s Financial Management Service (FMS) division steps in to assess whether any of these unpaid obligations exist. If they do, the FMS will determine how much your refund should be reduced to apply funds toward these debts. They can withhold all of the refund or just a portion. In any event, you will receive a notice from the FMS alerting you that an offset is being applied and stating the full amount of your refund, the amount you will actually be receiving, and the name and contact information of the agency where the funds will be sent.

To dispute the offset, contact the agency where the funds are being sent (not the IRS or Financial Management Service). Any negotiations or refunds will have to come from that agency. Once the offset has been determined, the FMS no longer manages the process. If you filed a joint return and the agency to whom the funds were sent determines that a refund is appropriate, you or your spouse may individually be eligible for some or all of those funds. This might apply if the obligation was incurred as one spouse’s sole responsibility. 

Contact us if you receive notification of a tax refund offset. We can assist with identifying whether the offset is legitimate.

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