The possibility of a tax refund being diverted away before it even lands in a taxpayer’s bank or loan account is well known among tax preparation services and financial institutions.

If you look up the fine print on some refund anticipation check or debit card services, you’ll notice that there is an explanation that the refund can be less than expected if the IRS invokes an offset.

What is an offset?

Here’s the explanation from IRS. gov

The Department of Treasury’s Financial Management Service (FMS), which issues IRS tax refunds, has been authorized by Congress to conduct the Treasury Offset Program. Through this program, your refund or overpayment may be reduced by FMS and offset to pay:

  • Past-due child support;
  • Federal agency non-tax debts;
  • State income tax obligations; or
  • Certain unemployment compensation debts owed to a state. (Generally these are debts for compensation that was paid due to fraud or for contributions due to a state fund that were not paid due to fraud).

You can contact the agency with which you have a debt, to determine if your debt was submitted for a tax refund offset. You may call FMS at the number below for an agency address and phone number. If your debt was submitted for offset, FMS will take as much of your refund as is needed to pay off the debt and send it to the agency you owe. Any portion of your refund remaining after offset will be issued in a check to you or direct deposited for you.

Does this really happen?

Oh, yes. I’ve heard of such situations word of mouth in previous years, and have already heard such a story involving this year’s tax season.


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