As of January 2026, the administration has announced an indefinite pause on using the Treasury Offset Program to collect on defaulted federal student loan debt. This means tax refunds generally will not be seized for defaulted student loans, though offsets for other debts like child support or state tax liabilities may still occur.
Short Answer — Yes, the IRS Can Take Your Refund
The IRS can legally take your tax refund and apply it to unpaid tax debt or other government debts. This is called a refund offset. It usually happens automatically.
FSA will restart the Treasury Offset Program, administered by the U.S. Department of Treasury, on Monday, May 5, 2025.
For the 2025 tax year, you can deduct up to $2,500 in student loan interest as an adjustment to income, but it's subject to income limits: the deduction phases out for single filers with a Modified Adjusted Gross Income (MAGI) over $85,000 (fully gone at $100,000) and for married couples filing jointly over $170,000 (fully gone at $200,000). This deduction covers both federal and private loans for qualified higher education expenses, and you don't need to itemize to claim it.
Interest began accruing under this forbearance on Aug. 1, 2025. This forbearance will last until the legal situation changes or servicers are able to send bills to borrowers at the appropriate monthly amount. Furthermore, time spent in this general forbearance will not count for PSLF or IDR forgiveness.
Today, the White House announced an indefinite pause of the collection of defaulted federal student loan debt, including through the Treasury Offset Program, which applies any tax refunds towards a defaulted borrower's outstanding federal student loan debt.
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.
To avoid the 22% tax bracket (or any higher bracket), focus on reducing your taxable income through strategies like maxing out 401(k)s and HSAs, deferring bonuses, tax-loss harvesting, smart charitable giving, and strategic asset location, understanding that higher rates only apply to income within that bracket, not your entire income.
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.
Pay the debt in full
You can also avoid offset by paying off remaining debt in full within 65 days of the notice to offset being sent, including applicable interest and fees.
You can contact the agency with which you have a debt to determine if the debt was submitted for refund offset by calling the Bureau of the Fiscal Service at 800-304-3107 (or TTY/TDD 800-877-8339), Monday through Friday 7:30 a.m. to 5 p.m. CST.
The One, Big, Beautiful Bill Act significantly affects federal taxes, credits and deductions. It was signed into law on July 4, 2025, as Public Law 119-21, and takes effect in 2025.
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.
The "27.39 rule" (often rounded to $27.40) is a simple financial strategy to save $10,000 in one year by consistently setting aside $27.40 every single day, making it an achievable micro-saving habit to build wealth or an emergency fund. It turns the daunting goal of saving $10,000 into a manageable daily action, emphasizing consistency over large lump sums.
The IRS will not charge you an underpayment penalty if: You pay at least 90% of the tax you owe for the current year, or 100% of the tax you owed for the previous tax year, or. You owe less than $1,000 in tax after subtracting withholdings and credits.
Yes, you can give your son $100,000 tax-free in 2025 by utilizing the annual gift tax exclusion and your lifetime exemption, but you'll need to report the gift to the IRS on Form 709 since it exceeds the $19,000 annual limit, though you won't pay tax unless you exceed your much larger $13.99 million lifetime gift/estate tax exemption. The gift is considered yours (the giver) for tax purposes, not your son's.
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 mostly audits tax returns of those earning more than $200,000 and corporations with more than $10 million in assets.
A recent tax law ("One Big Beautiful Bill") introduced a new $6,000 bonus deduction for Americans aged 65 and older, available for tax years 2025-2028, reducing taxable income, not the tax itself, with income phase-outs starting at $75,000 MAGI for singles and $150,000 for joint filers. This deduction adds to existing standard deductions, provides up to $12,000 for couples, and requires a Social Security number and filing status other than Married Filing Separately.
Defaulted federal student loans began moving back into the student loan default collections system starting in mid-2025. The government has said that refund offsets, wage garnishment, and other debt collection methods will resume as early as the 2026 filing season (when you file your 2025 tax return).
The "7-year rule" for student loans generally refers to when negative marks, like defaults, are removed from your credit report (around 7 years after the first missed payment or default date for federal loans, 7.5 years for private loans), but the debt itself doesn't disappear and must be paid off; it's also a benchmark in bankruptcy proceedings where federal loans can become dischargeable after 7 years from when payments were due, though proving "undue hardship" is required and difficult.