To stop the IRS from taking your refund, you must act before it's issued by resolving the underlying debt, proving economic hardship to get an Offset Bypass Refund (OBR) through the Taxpayer Advocate Service (TAS), or disputing the debt with the referring agency if it's for non-IRS debt like student loans or child support. Timing is critical, so contact the IRS or TAS quickly, complete Form 911 if needed, and understand that once the refund is applied, it's much harder to get back.
If you owe back taxes, the IRS will take all your refunds to pay your tax bill, until it's paid off. The IRS will take your refund even if you're in a payment plan (called an installment agreement).
If your refund exceeds your total balance due on all outstanding tax liabilities including accruals, you'll receive a refund of the excess unless you owe certain other past-due amounts, such as state income tax, child support, a student loan, or other federal nontax obligations which are offset against any refund.
Prevent an offset
Pay the full amount listed on the Intent to Offset Federal Payments (FTB 1102). Use the payment coupon included in the letter when you send your check or money order. To make a payment online, visit Payment options.
BFS will send you a notice if an offset occurs. The notice will reflect the original refund amount, your offset amount, the agency receiving the payment, and the address and telephone number of the agency. BFS will notify the IRS of the amount taken from your refund once your refund date has passed.
If you need more information on the offset, contact the Bureau of the Fiscal Service at 800-304-3107 (or TTY/TDD 866-297-0517) to find out where Treasury applied your tax refund.
Government agencies such as the IRS, state revenue departments, and child support enforcement can garnish your refund to cover unpaid debts. This process, known as a tax refund offset, is used to collect overdue taxes, student loans, child support, and other obligations.
One-time forgiveness, officially known as First-Time Penalty Abatement (FTA), is an IRS program that allows qualified taxpayers to have certain penalties removed from their tax accounts.
In order to request an offset bypass refund, the taxpayer, or representative, should make the request when the return is filed. The request must occur prior to assessment. The request needs to demonstrate the financial hardship the taxpayer faces. The amount of the offset limits the amount of the OBR.
Yes, if you have an IRS installment agreement, the IRS will automatically apply any tax refund you're due to your outstanding tax debt until it's fully paid, even if you're making your regular monthly payments on time. This is a mandatory "refund offset" required by federal law, but you can request an Offset Bypass Refund (OBR) from the Taxpayer Advocate Service (TAS) if you're facing financial hardship, provided you do so before the refund is offset.
IRS hardship reasons generally fall into two categories: 401(k) hardship withdrawals for "immediate and heavy financial needs" (like medical bills, home purchase/foreclosure prevention, funeral costs, or education) and tax debt hardship (inability to pay taxes due to inability to meet basic living expenses, long-term unemployment, or disability). For retirement plans, the IRS provides "safe harbor" reasons, including unreimbursed medical expenses, principal residence purchase/repair/foreclosure prevention, funeral expenses, and postsecondary education costs, plus expenses from FEMA-declared disasters.
When taxpayers disagree with the IRS's decision on their tax situation, they can submit a written request to have the IRS Independent Office of Appeals review the decision.
You may get a letter or notice from the IRS saying there's a problem with your tax return or your refund will be delayed. There are many reasons why the IRS may be holding your refund. You have unfiled or missing tax returns for prior tax years. The check was held or returned due to a problem with the name or address.
The IRS uses a combination of automated and human processes to select which tax returns to audit. Not reporting all of your income is an easy-to-avoid red flag that can lead to an audit. Taking excessive business tax deductions and mixing business and personal expenses can lead to an audit.
The IRS "10k rule" primarily refers to the requirement for businesses and financial institutions to report cash transactions over $10,000 by filing Form 8300 (for businesses) or a Currency Transaction Report (CTR) (for banks), under the Bank Secrecy Act. This rule helps combat money laundering, tax evasion, and terrorist financing, requiring reporting for single transactions or related transactions totaling over $10,000 in cash within a year, with penalties for non-compliance.
The "20k rule" refers to the traditional IRS threshold for reporting income from payment apps and online marketplaces on Form 1099-K: over $20,000 in gross payments AND more than 200 transactions in a calendar year. While a law (the American Rescue Plan) temporarily lowered the threshold to $600, recent legislation, the One Big Beautiful Bill Act (OBBBA) (OBBBA), has reinstated the $20,000/200-transaction rule for tax years starting in 2025, providing relief for casual sellers and gig workers.
You can settle back taxes by setting up a payment plan, applying for hardship status, or requesting a reduced settlement if you qualify. The IRS will ask for details about your income, expenses, and assets. You'll need to file all missing tax returns before they agree to any settlement.
How to Prevent Tax-Related Identity Fraud
The following are good options for your tax money, and should be the top priorities for your refund.
Entering information inaccurately. Wages, dividends, bank interest, and other income received and that was reported on an information return should be entered carefully.