If you owe IRS tax debt, the agency can withhold your federal income tax refund, in full or in part. The IRS may use all or a portion of the refund to pay off your tax debt, depending on how much you owe. We call this a tax refund offset, or an “administrative offset.”
The IRS can offset your refund for:
- Federal tax debt
- State tax debt owed
- State unemployment compensation debts
- Spousal support
- Past-due child support payments
- Federal student loan debt.
The IRS has no discretion to prevent a refund offset for spousal or child or support payments, unemployment income debt, or state tax debt, according to the Taxpayer Advocate Service, the arm of the IRS in place to support taxpayers.
You may be able to request an offset bypass on federal tax debt and federal student loan debt under certain circumstances – namely, financial hardship or innocent spouse relief.
Speak with the Taxpayer Advocate Service or tax debt relief specialists like the experts at Alleviate Tax, before pursuing a refund offset bypass. You will need to show proof of financial hardship or innocence.
It’s also important to file all your federal and state tax returns on time. You cannot request an offset bypass if you are missing tax returns from past years or haven’t filed for the current year.
It’s important to request the offset refund bypass (OBR) in a timely manner. Once the IRS has taken your refund and applied it to your prior tax bill, you cannot get tax debt relief through an OBR.
Here’s how to keep your hard-earned money in your pocket and avoid a reduced refund if you need that money to keep your home, pay your electric bill, or fund other necessities of life.
Filing for an OBR for Federal Tax Debt Under Economic Hardship
The Taxpayer Advocate Service assists taxpayers in filing for an OBR if they have have missed tax payments, but are expecting a refund for overpayment of taxes in the current tax year. You’ll need to file IRS form 911, Request for Taxpayer Advocate Service Assistance, at the same time or prior to filing your tax returns with the IRS. If you need help filling out this form or proving financial hardship, Alleviate Tax can help.
The IRS may issue an OBR if you are:
- Experiencing economic harm or about to suffer economic harm
- Facing immediate threat of adverse action (such as foreclosure or eviction)
- In danger of incurring significant costs (including professional representation or legal fees)
- In danger of suffering irreparable injury or long-term adverse impact
What does this mean in plain language?
If you are about to be evicted or have your house foreclosed on, you can probably qualify for an OBR. If the refund offset would make it impossible to pay your utility bills that will keep your electric, heat, and water turned on in your home, the IRS may agree to stop the refund offset. OBRs are only available up to the amount of your federal tax debt. This will not stop refund offsets to pay other debts.
There may be other economic reasons to qualify for an OBR. A tax debt relief professional can help you make a strong case, whether you are a small business owner who needs your tax refund to maintain operations and inventory, or an individual living in extreme poverty.
Preventing Federal Student Loan Debt Tax Offsets
If you have past-due student loan debt that did not qualify for student loan relief, you may be able to avoid offset, according to StudentAid.gov. You’ll have to enter repayment within the first 65 days after being notified of a tax offset. After that 65-day period, you may be able to stop offset by making the first five of nine payments required in a rehabilitation agreement. You may also request a review of your account if you have an objection to the debt.
Filing Form 8379 for Injured Spouse Allocation
If your spouse owes tax debt that you are not held liable for, you can prevent tax refund offset of your portion of the federal tax refund. You’ll need to file Form 8379, Injured Spouse Allocation.
If you are filing for Innocent Spouse Relief, you shouldn’t file Form 8379, according to IRS.gov. Instead, File form 8857. Alleviate Tax has helped our clients reduce their tax debt by filing for Innocent Spouse Relief. You may qualify if:
- Your spouse committed tax fraud without your knowledge
- Your spouse withheld information about their income
- Your spouse claimed false deductions
- You are a victim of domestic abuse and feared to question your tax returns
- You are divorced, separated, or no longer living with your spouse
Similarly, you may qualify for Injured Spouse Relief if you filed a joint return and your tax debt was – or is expected to be – offset for your spouse’s past-due tax debt. You must file within three years from the due date of the original tax return, including extensions, or within two years from the date you paid the tax that was later offset, whichever date is later, according to IRS.gov.
You may not be liable for the tax debt because you weren’t married at the time or because you weren’t aware that your spouse had past-due tax obligations. Laws may differ in community property states.
Filing for Innocent Spouse Relief or Injured Spouse Allocation can be complicated. It’s smart to seek the help of tax debt relief specialists to make sure you receive the money that is rightfully yours.
Take Action Against Refund Offsets
Many people rely on their federal tax refund every year to pay their rent or mortgage or even cover the next few months of living expenses. Make sure you receive the funds that are rightfully yours by filing to prevent a tax refund offset due to economic hardship.
If you need help with past due tax debt, Alleviate Tax can help you apply for an installment agreement, payment plan, offer in compromise, or many of the other programs the IRS offers to settle your tax debt and help hard-working Americans get back on their feet.
PPA
How do I stop my refund from being offset?
If you owe Federal tax debt, you can prevent a refund offset by filing Form 911 with the Taxpayer Advocate Service and proving you will face economic hardship if you do not receive your tax refund as expected.
How do I prevent tax offset?
If you owe student loan debt, past-due child or spousal support payments, state or federal tax debt, the IRS may offset your expected tax refund to cover your outstanding debt. You may be able to prevent a tax refund offset if you owe federal tax debt by filing form 911 with the Taxpayer Advocate Service when you file your tax return showing your refund due for overpayment of taxes.
How do I get an offset bypass refund?
To apply for an offset bypass refund (OBR) file form 911 with the Taxpayer Advocate Service at the same time or before your file your tax returns for the year. The TAX cannot process your request for a refund offset unless you have filed your tax returns for that year.
