Many Americans have found themselves in a uniquely stressful situation: they thought they’d be receiving a tax refund but found out that the IRS would be keeping it instead. So, why would this happen? If you have certain kinds of debt, the IRS may have the option to seize your income tax refund and put it directly toward your debt. Additionally, if you’re married, filing jointly, and your partner has unpaid debts, your portion of the refund could get seized as well.

So when can the IRS seize your refund to pay debt? And when can’t they? In this post, we’ll cover everything you need to know about when the IRS can seize your tax refund for debt and talk about what you can do if you’re worried about not receiving your refund.

When Can the IRS can Seize Your Tax Refund?

There are four situations in which the IRS can legally seize your refund to pay debt. These situations can affect you as an individual and can also affect you if you’re married, filing jointly, and your partner qualifies for seizure due to one of these situations. If you are married to someone who owes taxes, and your refund was seized to pay his or her tax debt, find out how to get innocent spouse relief. Contact Tax Defense Partners to find out how you can get innocent spouse relief. 

You Have Past Tax Debt

If you have unpaid tax debt, whether it’s from last year or from many years back, the IRS can legally decide to apply your refund toward your debt. And it doesn’t matter whether your debt or refund is federal or state. If you have a state tax debt, your state can seize money from your state or federal refund. The same goes for federal tax debt: if you have a federal tax debt, the IRS can seize money from your federal or state refund.

You Owe Child Support

The government will notice if you fall behind on required child support payments. And if you fall behind on these payments, the government can legally decide to put a levy on your refund in order to pay your owed child support. This can happen even after your child has turned 18, provided you still owe payments from when they were under 18.

Your Bankruptcy Trustee Requests Seizure

If you’re going through a bankruptcy, you’ll have a bankruptcy trustee that manages your assets, reviews your bankruptcy forms, and verifies your financial information. Part of managing your assets includes assessing whether or not a potential tax refund should go toward paying off your bankruptcy-related debts. If your bankruptcy trustee believes your refund would be best served settling your debts, they can request that the IRS seize your refund. This can sometimes come as a surprise, as bankruptcy trustees do not need to receive a taxpayer’s permission to request that their refund is seized.

You Defaulted on Your Student Loans

If you default on your student loans, the IRS can turn over your tax refund to the Department of Education to pay your student loan debt.

When the IRS Can’t Seize Your Refund

While there are debt situations in which the IRS can seize your income tax refund to pay your debt, there are some where they cannot. The IRS does not have the power to seize your refund for credit card debt or mortgage debt that is unrelated to a bankruptcy, nor can they seize your refund on the behalf of a collection agency if you do not have a lien against you. The IRS also cannot seize your refund for overdrawn checking accounts or bank fees, though your bank will likely apply your refund toward your debts before you can access it in full.

When the IRS Can Hold Your Refund

In certain cases, the IRS can’t seize your refund but may be able to hold it from you. If you didn’t file taxes in a previous year, if your spouse filed an injured spouse allocation form, or if you’re currently in a payment plan for owed taxes, the IRS can decide to hold your return while they decide whether or not you should receive your refund. In each of these cases, you can contact the IRS to resolve your refund hold or have a tax professional do so on your behalf.

What to Do If You’re Worried Your Refund Will Be Seized

If you’re concerned your income tax refund will be seized, you have options that can help you ensure you receive your refund. These options generally involved paying off debts that would make your refund seizable or talking to the IRS to clear up tax issues or tax errors that might cause your refund to be seized (you can also have a tax professional do this on your behalf). However, if you’re married and filing jointly and are worried about your partner’s debts affecting your refund, you have other options, which include filing separately or filing for injured spouse relief.

If you have debt and are concerned that the IRS may seize your tax return, contact Tax Defense Partners today. Our licensed CPAs and tax attorneys can provide you with a free consultation about your tax issues and help you decide the best course of action.