In a 2000-word news article, it is revealed that taxpayers can have their tax refunds seized by the federal government to satisfy old debts. However, this practice extends beyond tax debts. In 2008, the rules limiting the time to seize funds to resolve debts were rewritten, allowing the government to chase taxpayers for old debts indefinitely. This provision is codified in Title 31, Section 3716 of federal statutes. The Treasury Offset Program (TOP) helps collect debts by holding back money from federal payments like tax refunds. In fiscal year 2023, the program recovered over $3.8 billion in federal and state delinquent debts.
When a debt is not paid, it can be turned over to TOP. The process involves sending a letter to the debtor explaining the debt at least 60 days before sending it to TOP. If the debt remains unpaid after 120 days, it is entered into a database and matched to payments made by federal agencies, allowing certain payments like tax refunds to be offset. The law only requires two letters: one from the agency claiming the debt and one from TOP, withholding an amount from the payment. Furthermore, debts remain in the TOP database until the original agency stops collection, typically after the debt is paid in full.
Debts subject to offset must be $25 or more, delinquent, and legally enforceable. Examples of federal debts that might trigger offsets are federal income tax delinquencies and student loan defaults. TOP offsets only apply to government-related debts and do not include private debts like credit card or car loan delinquencies. Up to 100% of federal tax refunds can be seized for federal tax debts, child support, state income tax, and unemployment insurance debts. Social Security and Railroad Retirement benefits can also be seized to pay federal and non-tax debts, but these seizures are limited to 15%.
In recent years, the IRS no longer provides “debt indicators” to third parties, making RALs difficult to underwrite. Taxpayers may not have advance notice of an offset in the absence of a debt indicator, relying on tools like “Where’s My Refund?” on IRS.gov to check the status of a tax refund. Those who are unaware of a debt may be blindsided by an offset, especially if the debt is old and forgotten. While the IRS has limitations on collecting old debts, taxpayers should take steps to resolve debts to avoid liens and levies.
Overall, taxpayers should be aware that the government can seize tax refunds and other payments to satisfy old debts, with the Treasury Offset Program being a significant tool in collecting delinquent debts. It is essential for individuals to respond to debt notices promptly and take proactive steps to resolve debts to avoid potential offsets and other collections.
