Treasury offset: why your tax refund or benefit was taken

Treasury offset is the reason a federal tax refund or a Social Security payment arrives smaller than expected or not at all. The Treasury Offset Program matches people who owe overdue government debts with federal payments about to go out to them and holds back money to pay the debt, says the Bureau of the Fiscal Service. Nothing is taken from your paycheck by your employer; the money is kept before it reaches you.

of a monthly Social Security payment is the most it can take

15%

a month of Social Security you always keep

$750

of warning letter, at least, before a debt is sent to the program

60 days

Which debts Treasury offset collects

Four kinds of debt can reduce a federal tax refund, the IRS explains:

• past-due child support,
• debts owed to a federal agency, such as a defaulted federal student loan or an overpaid federal benefit,
• state income tax owed,
• some state unemployment debts, such as an overpayment obtained by fraud, under 31 CFR 285.8.

Back federal tax is handled by the IRS itself before the refund is issued, so it shows up as an IRS adjustment notice, not an offset letter. Private creditors, card companies and hospitals cannot use the program at all.

Which payments can be reduced

On a $1,200 monthly Social Security payment, 15% is $180 and $1,200 minus $750 is $450, so up to $180 a month can go. On $850 a month, only $100 can go, because you keep $750. Some other federal payments are fully exempt; the Fiscal Service lists them in its payment exemption chart.

How to find out who took your refund

The Fiscal Service mails a notice after an offset showing the original refund, the amount taken and the agency that got it. The IRS does not get those details, so calling the IRS only helps if the refund on the notice does not match your return. If no notice came, the IRS points you to the Fiscal Service at 800-304-3107.

The agency named on the notice is the one that can tell you the balance, fix a mistake or set up a payment plan.

Can you stop a Treasury offset?

The best window is before it happens. An agency has to mail you a letter at least 60 days before sending a debt to the program, with the chance to pay, agree a plan or dispute it, according to the Fiscal Service. Answer that letter in writing.

• Dispute it with the agency if the debt is not yours, is paid or the amount is wrong.
• Agree a plan the agency accepts; the agency is the one that tells the program to stop collecting.
• Get out of default on a federal student loan; see student loan wage garnishment.
• File for bankruptcy: the agency has to pause collection under the automatic stay.

If you filed a joint return and the debt is only your spouse’s, ask for your share back with Form 8379. A federal agency can also go after your wages with an administrative wage garnishment and that has its own 15% rule and hearing window.