If you are still waiting for your federal income tax refund this year, here's one reason it might be delayed: the government could have seized it. The same federal agency that issues tax refunds, the U.S. Department of the Treasury, also has the authority to hold back all or part of your refund to repay debts that you may owe. This is done by the department's Bureau of the Fiscal Service. In bureaucratese, it is known as an "offset."

6 Debts That Enable the IRS to Seize Your Tax Refund

Here are the six major types of personal debt that can result in a tax refund offset along with some advice on what to do if it happens to you.

The Treasury can garnish your Social Security or Social Security Disability Insurance (SSDI) benefits to collect on back debts.

  • Federal Income Taxes If you owe back income taxes, your refund can be taken to pay them. Whatever is left, if anything, will be refunded to you in the way you requested on your tax return, either by direct deposit or check. You should also get a notice from the IRS explaining why the money was withheld. If you believe that a mistake was made, you will need to contact the IRS. The number to call for questions or assistance is (800) 829-1040. 
  • State Income Taxes  The feds can also withhold money from your tax refund to cover unpaid state income taxes.
  • State Unemployment Compensation – If your state believes you collected more in unemployment compensation than you were entitled to, either due to outright fraud or to a failure to properly report your earnings, it can also ask the U.S. Treasury to offset your tax refund.
  • Student Loans  If you defaulted on a federally insured student loan, the government can seize your tax refund to help repay it. The Treasury Department is required to send you advance notice and to provide an opportunity for you to challenge the claim or pay it off before your refund is withheld. Your state could also withhold money from your state tax refund for this purpose. In addition, the U.S. Department of Education, or the guaranty agency that holds your loan, has the authority to order your employer to withhold up to 15% of your disposable income until the defaulted loan is paid off.
  • Child Support  When parents are delinquent in paying court-ordered child support, their state’s child-support agency can request that the Treasury Department withhold money from their tax refund to cover the back payments. People in this situation should receive a pre-offset notice explaining how much they owe, how the offset process works, and how to contest the debt. Once the money has been withheld from their refund, they should also receive an offset notice from the Bureau of the Fiscal Service showing how much money it withheld and referring them back to the state child support agency if they have further questions.        
  • Spousal Support – Similarly, an award for spousal support that’s part of a child support order can also result in a tax-refund offset if those payments are overdue.  

Note that if you filed a joint tax return with your spouse and your refund was offset because of debts belonging only to your spouse, you can request your portion of the refund back from the IRS. To make a claim, a taxpayer must file Form 8379: Injured Spouse Allocation.

Bear in mind also that your tax refund is not the only leverage the Treasury can use to collect on back debts. Your Social Security or Social Security Disability Insurance (SSDI) benefits can be garnished (that is, partially withheld) in some instances. However, supplemental security income cannot be garnished, even by the government.  

Although the Treasury Department can garnish your Social Security or Social Security Disability Insurance (SSDI) benefits, it cannot touch your supplemental security income.

The Bottom Line

If you have certain types of unpaid debts—such as federal or state taxes, child or spousal support, a student loan that’s in default, or unemployment compensation to which you were not entitled—the U.S. Treasury can hold back all or part of your income tax refund to help pay the amount that you owe. The practice is known as an offset, and it certainly leads to upset, so try not to let it happen to you.