Go to Top

Can My Tax Refund Be Garnished to Pay My Debts?

Blog Post Image

Many of us rely on the financial boost provided by our yearly tax refunds. Whether for a vacation, a medical procedure, or a mortgage payment, that extra money can help you achieve your goals. For this reason, you need to be aware of the possibility of tax refund garnishment. Basically, when you owe the government money, they can take whatever you owe right out of your tax refund–even before you receive it.

What Kind of Debt Might Result in Tax Refund Garnishment?

Fortunately, not all debt will result in a tax refund garnishment. The IRS only garnishes tax refunds to pay off the following types of debt:

  • Back taxes
  • Federal student loans
  • Unpaid child support
  • Any other debt owed to the federal or a state government

This means that private debts you might owe because of a mortgage, vehicle, private student loan, medical expenses, or a personal loan cannot qualify for a tax refund garnishment. However, once you deposit the refund into your bank account, private creditors may be able to access it through legal action.

The Department of Treasury’s Financial Management Service administers the Treasury Offset Program, or TOP, which allows state and federal government agencies to garnish your tax refund, a process they call offsetting. Basically, the TOP keeps a database of individuals and entities who owe the government money. Before making a payment such as a tax refund, TOP searches the name of the recipient against this list, and may withhold the payment to the extent necessary to recover the debt. This is the only mechanism for garnishing your federal tax refund, which is why private creditors can’t do it.

Can the Ohio Government Garnish my State Tax Refund?

The Ohio government has a tax offset program similar to the federal government. The Ohio Department of Taxation (ODT) runs a state tax refund offset program, which allows the garnishment of your refund if you have the following types of debt:

  • Owed Ohio or federal taxes
  • Debts to the Attorney General’s Office
  • Premium payments to the Bureau of Workers’ Compensation
  • Child and spousal support payments
  • Payments to Ohio Jobs and Family Services

When the Ohio government garnishes your state tax refund, they will send you a letter explaining why you were subjected to offset, and which government agency was owed money. If the Ohio government is unable to recover everything you owe, it may file a request with the TOP in the hopes of garnishing your federal tax refund too.

When Can my Refund Get Garnished Over Student Loan Debt?

Many people face the threat of tax refund garnishment because of their student debt issues. The government can only garnish your tax refund if you have defaulted on a loan. When you miss a loan payment by more than 30 days, the loan becomes delinquent. If you fail to make a payment after 270 days, the loan goes into default, at which point your tax refund may be garnished.

Although your loan servicer must provide you with notice of their intent to seek a tax offset, a failure to receive notice is not a basis for challenging the garnishment of your tax refund. If your tax refund is insufficient to pay back the delinquent portion of your loan, they may also garnish up to 15 percent of your wages.

Can I Get My Refund Back if it Was Garnished?

It is very difficult to contest tax offsets. You may request a hearing to contest the garnishment, but to prevail, you will need to demonstrate that you were not in default on your debt. But in the vast majority of cases, borrowers who are subjected to a tax refund garnishment are in fact in default on their debt.

If you are married and file your taxes jointly, you may have had your tax refund garnished because of your spouse’s debt. In such cases, you may be able to get your portion of the refund back by filing an “injured spouse claim” with the IRS. You will need to demonstrate that the tax offset occurred because of your spouse’s debts, and that the debts in question were solely theirs.

A Skilled Ohio Debt Lawyer Can Help You

At Luftman, Heck & Associates, our debt management lawyers we take pride in our ability to help Ohioans overcome their debt issues. Proper planning, knowledge of your rights, and in some cases, legal action, can remove the cloud of debt over your life. Don’t wait for your loans to go into default before taking action. If you are worried that you cannot meet your debt obligations, Ohio debt lawyer Jeremiah Heck can help. Contact our office today at (888) 726-3181 for your free consultation.