In general, the laws concerning incomes taxes permit an individual who has paid off all of their taxes to receive an income tax refund. In certain circumstances, the U.S. Internal Revenue Service (IRS), which is the main tax service of the federal government that collects taxes and enforces the Internal Revenue Code, may be able to intercept that refund.
A tax refund interception refers to when an individual’s tax refund gets taken by the IRS or when an individual taxpayer sends the refund to the IRS, for the purposes of giving the money from the tax refund to a creditor to pay off that individual’s debts. The tax refund interception will be considered a payment on the debt that the individual still owes to the creditor.
Tax refund intercepts may only be carried out by state and federal government agencies, such as the IRS. While certain situations permit the IRS to intercept your tax refund, there are other governmental agencies that may be able to take your tax refund depending on the type of debt you still owe. For instance, the Department of Education (DOE) may be able to intercept your tax refund if you owe money towards student loan payments.
In addition, it should be noted that a private creditor (e.g., a credit card company) will not be allowed to intercept your tax refund since these interceptions may only be applied to certain kinds of government debts (e.g., overdue state taxes).
Is a Wage Garnishment the Same as a Tax Refund Intercept?
Despite the often confusing interpretation of these two terms, garnishing someone’s wages from their paycheck is not considered to be the same type of process as intercepting an individual’s tax refund.
In general, a wage garnishment is the amount deducted from a taxpayer’s paycheck in order to pay off that individual’s remaining debts. Wage garnishments are also typically supported by a formal court order. In most instances, the highest percentage of money that can be taken from an individual’s paycheck is usually twenty-five percent.
On the other hand, a tax refund intercept is defined as the amount of money that is taken from an individual’s income tax refund based on their filed tax return and sent to a creditor during tax season in order to pay off that individual’s debts.
Basically, the main difference between a wage garnishment and a tax refund intercept is that a wage garnishment comes from a person’s paycheck, while a tax refund intercept stems directly from a person’s individual income tax return. Also, as mentioned above, creditors may not intercept taxes—only government agencies can and it must be for a specific purpose.
When Can the IRS Intercept a Tax Refund?
The IRS can intercept a tax refund that stems from an individual’s income tax return for a number of reasons. For instance, a tax refund intercept can usually be taken by the IRS when any of the following debts are still owed by an individual:
- When an individual defaults on their student loan payments;
- When an individual still owes alimony to a spouse;
- When an individual has debts associated with unemployment compensation from a state;
- When an individual has back child support that they have not yet paid; and
- When an individual has outstanding federal or state income taxes they still owe to the IRS or other state agency.
Can I Fight for My Tax Refund?
Before the IRS may intercept an individual’s tax refund to pay off their creditors, the IRS is legally obligated to send a notice to that individual. The notice is typically sent in the form of a letter and must inform the individual of the IRS’s intentions to intercept their tax refund in order to pay off their remaining debt. An individual may be able to fight to keep their tax refund by requesting a hearing to have their tax refund returned to them.
Some instances when a person may be able to fight to have their tax refund returned to them after an interception may include when they can demonstrate any of the following evidence:
- That the debt for which the tax fund intercept is being used for has already been paid off by them;
- That the actual tax refund interception is not legally enforceable (e.g., the IRS never sent the individual notice concerning its intentions to intercept an individual’s tax refund); or
- The amount of the tax refund that the IRS intercepted is more than what is owed to the creditor for their debts.
What Happens to My Spouse’s Portion of the Refund If It’s Taken for Child Support?
A married couple who files a joint income tax return may be subject to have their tax refund intercepted for back child support. Since the income tax is filed jointly, the spouse that does not owe child support will also suffer the consequences of this action.
However, the other spouse (i.e., the spouse not responsible for back child support) may be able to file a claim to recoup the share of the portion of the tax refund that is rightfully owed to them.
Can I Avoid Having My Tax Refund Taken?
An individual has several options that may help them to avoid having their tax refund intercepted or taken by the IRS.
For example, one way to avoid having a tax refund intercepted by the IRS is to increase the amount of money that is taken out for taxes from each of their paychecks throughout the calendar year. This way, when it comes time to file the individual’s tax return in April, the amount they owe the IRS for penalties should be less than what they owed on back taxes.
However, this will not be helpful for avoiding having a tax refund taken or intercepted by the IRS if it is being used to pay off creditors for outstanding debt payments. In this case, the individual will either need to get a raise, a higher paying job, increase the amount of money they receive on their taxes (e.g., have minimal taxes taken out), and so forth.
This will help to decrease the amount of the tax refund they receive after they file their income taxes for the year.
Which is the Best Option for Me?
There are three options when it comes to dealing with issues concerning tax refund interceptions. The first is that you can speak with your creditors and/or the IRS about your outstanding debts. There may be ways for you to negotiate or communicate with them about such issues and reduce the amount of debts owed or tax refund taken from your tax return.
The second option involves discussing the tax refund intercept issues with your personal certified public accountant (i.e., a CPA). Your CPA can explain why you may have had your tax refund intercepted and ways you may be able to avoid that from occurring in the future. Your CPA can also help you select the right choices on your individual income tax return when you file to reduce the amount of your tax return refund.
Your third option, which is potentially the best depending on your circumstances, would be to contact a local tax or finance lawyer for further legal assistance. An experienced finance lawyer in your area may be able to prevent creditors from intercepting your income tax refund. Your lawyer can also help you to communicate and negotiate with the IRS about a debt that you may have already paid off or a similar tax issue.
Alternatively, your lawyer can also assist you in communicating, negotiating, and restructuring a repayment plan with your creditors. Oftentimes, a creditor will be willing to work with you if you can demonstrate that you have standard income to begin paying down your debts.
In addition, if your tax refund intercept issue involves a legal dispute, then your lawyer will also be able to provide legal representation at any related court proceedings. Finally, should you have any other questions or concerns about a tax refund intercept, your lawyer will be able to answer your questions and recommend solutions to resolve your concerns as well.