Where Did My Refund Go? 

A Guide to IRS Offsets and Other Unpleasant Surprises

So, you did everything right. You filed your taxes, triple-checked the math, and waited for your refund to hit your bank account. And then your refund is smaller than expected or worse, it doesn’t arrive.

Before you start writing a strongly worded letter to the IRS, let’s talk about refund offsets. It’s a fancy way of saying, the government took some (or all) of your refund to cover unpaid debts. If your refund disappeared, here’s where it might have gone.

You Owe Back Taxes 

The IRS always gets paid first. If you owe federal or state taxes from a previous year, the IRS is going to help itself to your refund before you ever see a penny. If this is the case, you’ll receive a Notice of Offset in the mail explaining how much was taken and why. 

What You Can Do About It:

1. If the IRS made a mistake, call the IRS Treasury Offset Program.
2. If you genuinely owe the money, the only way to stop the offset is to pay your balance before filing next year.

Unpaid Child Support 

If you’re behind on court-ordered child support, the government can legally take your refund and send it to the custodial parent.

If this is the case, The Bureau of the Fiscal Service (BFS) handles child support offsets, and they’ll send you a letter explaining what happened.

What You Can Do About It:

1. If you disagree with the offset, contact your state’s child support agency.
2. If you’re struggling with payments, you may consider working with the court to set up a more manageable arrangement.

Defaulted Student Loans

If you have federal student loans in default, your tax refund is fair game for collection. For this scenario, you will get a letter before your refund is taken, warning you about the offset.

What You Can Do About It:

1. Call the Department of Education’s Default Resolution Group to discuss options.
2. You may be able to rehabilitate or consolidate your loan to stop future offsets.
3. Filing for an injured spouse claim can help if your spouse’s refund was unfairly taken for your loans.

Your Spouse’s Debt Got Your Refund Taken 

If you filed jointly but your spouse owes back taxes, child support, or student loans, guess what? Your refund is at risk, too. If your refund is to be used for your spouse’s debt, you’ll receive a Notice of Offset explaining why the refund was reduced.

What You Can Do About It:

1. File Form 8379 (Injured Spouse Allocation) with the IRS to get your portion of the refund back.
2. This can take several weeks to process, so patience is key.

What If You Need Your Refund and It’s Gone?

1. If your refund was offset and you were counting on that money, set up a payment plan for your debt – This can prevent future refunds from being taken.
2. Apply for hardship relief.  If you’re in extreme financial hardship, you can request a temporary hold on your debt collection.
3. Check if you qualify for an injured spouse claim, if your spouse’s debt is the issue.
   
4. Plan for next year. If your refunds keep getting taken, consider adjusting your tax withholding to reduce your refund amount. That way you get paid throughout the year instead of giving the IRS a lump sum to seize.

The IRS Won’t Forget About Debt, But You Can Get Ahead of It

Finding out your refund was taken for debts is frustrating. If you’re at risk for an offset, take action before tax season to avoid surprises next year.

Need help figuring out where your refund went, or how to keep it next year? We’re here to help. Let’s make sure next tax season doesn’t come with any nasty surprises.