My Refund was offset?

If you have a federal tax debt from years prior and this year are expecting a refund, the IRS will withhold that refund to pay back the old tax debt.

Your tax refund may be used to pay back a few other debts as well and in these cases it isn’t the IRS keeping your money, it is the FMS.

The Financial Management Service

The Financial Management Service (“FMS”) is another bureau of the U.S. Treasury. The purpose of the FMS is to provide central payment services to federal program agencies, and the FMS also operates the federal government’s collections and deposit systems.

The FMS has been authorized by congress to conduct the Treasury Offset Program. Through the treasury offset program, the FMS is required to offset your tax refund – and/or offset any other type of payment from a federal agency, including government employee salary – to instead pay:

  • Past-due child support
  • Student Loan Debt (Federally funded education loans)
  • Other Federal agency non-tax debts
  • State income tax debt, or other certain debts owed to a state government.
It works like this:

when you file your tax return and have a refund coming, the IRS then notifies the FMS that you should be paid. The FMS in turn takes your money, and gives it to that other agency you owe instead.

Student Loan Debt

If you have one or more federally funded education loans, and have defaulted on them, the FMS will offset your tax refund to help pay those loans.

There is nothing any tax processional can do to stop your tax refund from being offset. You will have to tackle your student loan debt. If you are saddled with student loans, make sure you have investigated all your options.

Although OMG Tax cannot help with your loans, help is available. If you would like professional assistance with your student loan debt; to explore the possibility of consolidating multiple student loans, refinancing, or forgiveness programs, please call 888-517-8349.

Past Due Child Support

If a state court has decided that you must pay child support, and you have not or could not, your tax refund will be used to pay those obligations. There is nothing a tax professional can do to stop this from happening.

Laws and programs related to child support debt vary wildly from state to state. For example, some states do have programs that erase old payments in return for compliance with future payments and some states have no such programs. If you want professional help, you will need to contact an attorney that specializes in family law.

Preventing your Tax Refund from being Offset

While you are resolving your non-tax debt, you cannot stop a tax refund that is due from being offset. However, you can prevent it in the future! How? It is simple, really: Don’t have a refund to offset.

Let’s be clear on this: You must pay federal income tax, and tax must be paid as income is earned. This means that if you are employed, you must have estimated tax withheld from your paycheck. If you are self-employed, you must make your estimated tax payments, at least once per quarter.

However, you do not need to pay one cent more tax than required. Doing so, is exactly why you end up with a Tax Refund once you file a tax return. The monies that later become your “tax refund” were essentially an interest-free loan you made to the federal government; stop doing it. A majority of tax and accounting professionals agree: it is better to have a little more income available to budget each month, than a small cash windfall after/during tax season.

Make sure your W4 on file with your employer is not resulting in too much tax being withheld. Ideally, when armed with proper tax planning, when you file your tax return you will see a very small refund, if any, or a very small amount of tax due. Get as close to the correct tax amount all year long, and you won’t have a refund for the FMS to offset.

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