IRS tax refunds can be offset (intercepted) to pay off various federal and state debts through the Treasury Offset Program (TOP). Primary debts causing this include past-due federal income tax, state income tax, child support, federal non-tax debts (e.g., student loans), and state unemployment compensation debts.
Past-due child support; Federal agency nontax debts; State income tax obligations; or. Certain unemployment compensation debts owed to a state (generally, these are debts for (1) compensation paid due to fraud, or (2) contributions owing to a state fund that weren't paid).
If you owe money to a federal or state agency, the federal government may use part or all of your federal tax refund to repay the debt. This is called a tax refund offset.
Your tax refund can be taken to pay for several types of existing debts, primarily past-due federal taxes, child support, state income taxes, unemployment compensation debt, and other federal agency non-tax debts, like defaulted student loans, through the Treasury Offset Program (TOP). The IRS always pays itself first for any outstanding federal tax liabilities before other agencies can claim your refund, say TurboTax, and Taxpayer Advocate Service.
If you owe federal or state income taxes, your refund will be offset to pay those taxes. If you had other debt such as child support or student loan debt that was submitted for offset, FMS will apply as much of your refund as is needed to pay off the debt and then issue any remaining refund to you.
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 biggest tax mistakes people make include filing late, math errors, incorrect personal info (like Social Security numbers), forgetting deductions/credits (like EITC), misreporting income, not signing forms, and making errors with bank details for direct deposit, all leading to delays, penalties, or missed savings, with using tax software or professionals helping avoid these common pitfalls.
What Types of Accounts Can the IRS Not Touch?
Tax Refund Offset
The debtor is notified in advance of any offset action to be taken. Individuals may call the TOP Interactive Voice Response (IVR) at 800-304-3107 to determine the contact information for the agency or state they owe.
Generally, you can't reverse a tax offset once the debt is paid. However, there are limited exceptions to this rule. Here's when a reversal might be possible: Clerical error: If the offset was due to a mistake in paperwork or a clerical error, the IRS may be able to reverse it.
At the time of the tax refund offset, Treasury's Bureau of the Fiscal Service mails a Notice of Offset to the noncustodial parent stating that all or part of their federal tax refund has been intercepted. The Notice also provides direction on contacting the child support agency for further information.
Depending on the type of debt you owe, examples of payments that TOP can offset include:
Before the offset begins, a notice of intent to offset will be sent to your last known address to inform you that the offset is scheduled to begin in 65 days. The notice may be sent only once, and offsets will continue until your debt is paid in full or the default status is resolved.
Types of Payments Subject to Offset
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.
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 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.
Key Takeaways
If a business intentionally disregards the requirement to provide a correct Form 1099-NEC or Form 1099-MISC, it's subject to a minimum penalty of $660 per form (tax year 2025) or 10% of the income reported on the form, with no maximum.
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.