The Case of the Disappearing Refund

your tax return | February 08, 2016 | By Bob Williams

tax refund reduction for debt owed

It seems to happen all too often: A taxpayer does their taxes and sees on their bottom line a tidy little refund. But when they check what was deposited into their bank account, the amount is less, sometimes quite a bit less. What’s up with THAT??!

Before you call the IRS and give them a piece of your mind, make sure the reduction isn’t because of a problem somewhere else. For example, your refund could be used to pay back debts you owe to a federal agency, or to some states.

If the Department of the Treasury’s Bureau of the Fiscal Service (BFS) is notified that you have an outstanding debt, it may use at least some of your refund to satisfy the outstanding amount. For example, if you owe any of these, your refund could be reduced:

  • Federal income tax
  • Past-due child and parent support.
  • A non-tax debt to a federal agency (such as a student loan)
  • Unpaid state income tax to a state
  • Certain state unemployment compensation debts

Such tax refund reductions are called offsets, and if your refund has been reduced or eliminated to satisfy one, you’ll get a written notice of that from either the IRS or the BFS, depending on the reason for the offset. The notice will show you the original refund amount, your offset amount, the agency that got the payment, and its address and telephone number. If you don’t believe you owe the amount taken from your refund, you should call the agency listed on the notice.

Call the IRS only if your original refund amount on the notice is different from the refund amount shown on your tax return.

If you see a reduction in your refund, but don’t get a written notice, call the Bureau of the Fiscal Service at (800) 304-3107. They’re available Monday through Friday, 7:30 a.m. – 5 p.m. Central Time.