Tax season often brings anticipation of a refund for millions of Americans. But if you owe money on federal student loans or back taxes, that excitement can quickly turn into concern. Will the IRS take your refund to cover those debts? Can you still receive part—or any—of your refund? In this detailed blog, we’ll explore what happens to your tax refund when you owe the federal government money and the options you have to protect or reclaim it.
Understanding How Refund Offsets Work
The U.S. Department of Treasury runs a program called the Treasury Offset Program (TOP), which allows federal and state agencies to collect outstanding debts by intercepting federal payments—including tax refunds. If you owe certain debts, your refund can be “offset,” meaning all or part of it may be withheld to pay your balance.
Examples of debts subject to offset include:
- Defaulted federal student loans
- Unpaid federal or state income taxes
- Unpaid child support
- Certain unemployment compensation overpayments
- Other federal agency debts
If You Owe Federal Student Loans
If you have defaulted on a federal student loan, the U.S. Department of Education can request the IRS to withhold your tax refund to cover the debt. This applies to both federal income tax refunds and stimulus payments (when applicable).
However, if your loans are not in default, your refund will generally not be affected. Being in deferment, forbearance, or active repayment typically protects your refund from being offset.
Temporary Pause on Offsets
Due to the COVID-19 pandemic, federal student loan collections, including tax refund offsets, were paused. This pause was in place until October 2023, but resumed thereafter unless new policies are enacted. Always check the Federal Student Aid website for the latest updates on collection status.
If You Owe Back Taxes
If you owe the IRS for prior years and have an unpaid tax balance, your refund will most likely be automatically applied to your tax debt. This means you won’t receive a refund until your back taxes are fully paid.
Even if you set up a payment plan (Installment Agreement) with the IRS, any future refunds will still be offset and applied to your outstanding balance unless the debt is completely settled.
Note: The IRS is not required to notify you in advance when applying your refund toward your back taxes. However, you will receive a notice afterward explaining how your refund was used.
How Will I Know My Refund Was Taken?
If your refund is offset, the Bureau of the Fiscal Service (BFS) will send you a notice explaining:
- The original amount of your tax refund
- The amount taken and to whom it was sent
- The name and contact information of the agency receiving the funds
This notice serves as your official confirmation. If you don’t receive it or need more details, you can contact the Treasury Offset Program at 800-304-3107.
Can My State Refund Also Be Taken?
Yes. Many states participate in the Treasury Offset Program and may withhold your state refund to pay federal or state debts. Additionally, states have their own offset programs that may intercept your state tax refund for unpaid obligations like child support or state taxes.
What If I Filed a Joint Return But Only One Spouse Owes?
If you filed a joint tax return and your refund was taken due to your spouse’s debt (such as student loans or back taxes), you may be eligible for relief by filing Form 8379, Injured Spouse Allocation.
This form allows the IRS to determine the portion of the refund that belongs to the spouse who is not legally responsible for the debt and return that portion to them. The injured spouse must:
- Have earned income reported on the joint return
- Have paid federal income tax through withholding or estimated payments
It can take 8–14 weeks for the IRS to process this form, so it’s advised to file it as early as possible—either with your tax return or separately afterward.
Can I Dispute the Offset?
Yes, but not with the IRS. If you believe the refund offset was made in error, you must contact the agency that received the funds. For example:
- Contact the U.S. Department of Education for student loan debt disputes
- Contact the state tax agency for back state tax disputes
You can also request a copy of your debt record or verification of the debt. If the agency determines that the offset was incorrect, they can issue a refund back to you.
What About Private Student Loans?
Private student loans are not eligible for collection through federal tax refund offsets. Only federal student loans in default are subject to TOP. However, private lenders may pursue other legal avenues, like wage garnishment or civil lawsuits, to collect on defaulted debt.
How to Protect Your Refund from Being Taken
If you know you owe a federal debt and want to avoid having your refund taken, consider these steps:
- Set up a payment plan: While this doesn’t prevent offset, it shows good faith and may help resolve the issue faster.
- Apply for hardship status: In certain cases, you may qualify for a hardship exemption from refund offset, especially for child support or student loans.
- File Form 8379: If you’re an injured spouse, this is your best defense.
- File early: While not a guaranteed solution, filing early may allow your return to be processed before an agency submits an offset request (though this is a narrow window).
Will I Receive the Full Refund If My Debt Is Less Than the Refund?
Yes. If your refund is more than your outstanding debt, the Treasury will withhold only the amount necessary to cover the debt. The remaining balance will be issued to you either as a direct deposit or a mailed check, depending on how you filed.
Example: If you’re owed a $3,000 refund but have $1,200 in defaulted student loans, $1,200 will be intercepted and the remaining $1,800 will be refunded to you.
How Can I Check If My Refund Will Be Offset?
You can call the Treasury Offset Program Call Center at 1-800-304-3107 to check if you have a debt that will result in an offset. This service is available 24/7. You’ll need to provide your Social Security Number to verify your identity.
Conclusion: Refunds Can Be Affected, But Not Always Gone
Yes, you can still get a tax refund even if you owe student loans or back taxes—but only under specific circumstances. If your loans are in good standing or if your tax debt is resolved, your refund should not be impacted. However, for those in default or with outstanding balances, the IRS and other government agencies have the authority to seize all or part of your refund.
Understanding the Treasury Offset Program and your rights—like filing as an injured spouse or disputing erroneous offsets—can make a big difference. As always, if you’re unsure of your situation, speak with a tax professional or financial advisor to ensure your tax return is filed properly and your refund is protected wherever possible.
