Let Your Clients Know Unpaid Debt Can Affect Their Refund

If your client owes a debt that’s past-due, it can reduce their federal tax refund. The Treasury Department’s Offset Program can use all or part of their refund to pay outstanding federal or state debt. Here are five facts to know about tax refunds and ‘offsets.’

  1. The Bureau of Fiscal Service runs the Treasury Offset Program .
  2. Debts such as past due child support, student loan, state income tax or unemployment compensation may reduce your refund. BFS may use part or all of your tax refund to pay the debt.
  3. Your client will receive a notice if BFS offsets their refund to pay your debt. The notice will list the original refund and offset amounts. It will also include the agency that received the offset payment and their contact information.
  4. If your client believes they do not owe the debt or they want to dispute it, contact the agency that received the offset. They should not contact the IRS or BFS.
  5. If your client filed a joint tax return, they may be entitled to part or all of the refund offset. This rule applies if their spouse is solely responsible for the debt. To request their part of the refund, file Form 8379 , Injured Spouse Allocation.

Source: IRS Tax Tip 2014-59