4 Scenarios Where the IRS Can Take Your Tax Refund

The Internal Revenue Service – love ‘em or hate ‘em, they aren’t going anywhere. Actually, who loves the IRS? More like, hate ‘em or hate ‘em more, they aren’t going anywhere! While there’s no getting out of paying your usual taxes, if you happen to get on the bad side of the IRS, you’ll feel it. In certain instances, the IRS can take your tax refund and use those seized funds for outstanding payments due. The CGS Team is sharing 4 ways the IRS can take your tax refund and leave you penny-less!

#1 Past Due Income Taxes

This one should be a given, since income taxes come out of any income you earn. If you worked as a contractor (received a 1099) and failed to file taxes, you definitely owe some income tax! When you do file the next go round, you may notice the IRS taking out any past due income taxes, plus interest and fees. The same applies to state income taxes – they can be taken out at the federal level. To avoid the IRS seizing your tax refund, always file your taxes on time.

#2 Unemployment Compensation

Were you out of work for a specific period of time and earned unemployment? Did you secretly bring in income while receiving unemployment? According to Investopedia, “If your state believes you collected more in unemployment compensation than you were entitled to, either due to outright fraud or to a failure to properly report your earnings, it can also ask the U.S. Treasury to offset your tax refund.”

#3 Student Loan Repayment

Student loans can be a pain, but they probably aren’t going anywhere. If you can’t afford to pay your federal student loans, reach out for a forbearance or income-based repayment plan. Failing to pay your student loans (regardless if you can afford them or not) and not telling anyone can result in the IRS taking your tax refund to cover your back payments.

On a positive note, the IRS is required to send you advance notice and give you the opportunity to challenge the claim or pay it off before your refund is withheld. Your state can do the same. Unfortunately, it gets worse. When you fail to respond to the notices and fail to pay your loans, the U.S. Department of Education has the right to require your employer to withhold up to 15% of your disposable income until the defaulted loan is paid off. That’s worse than having your tax refund seized!

#4 Child and/or Spousal Support

If a parent or spouse has a court-order to pay child support or spousal support and fails to do so, their state’s child-support agency can request the IRS seize the person’s tax refund to cover the amount. Similar to the student loan seizure process, a person will receive notice that their tax return is being taken to cover the cost of back payments.


Bottom line? If you owe past due amounts in any of the scenarios listed above, reach out the IRS. Get yourself set up on some form of a repayment plan. You don’t want to be caught off guard with a seized tax return, especially if you already made plans for that money. Have you ever had your tax refund seized? If so, what for? Have you ever repaid money to the IRS? Share your IRS horror stories in the comment section below!

-The CGS Team



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