Can They Garnish Your IRS Refund to Fulfill a Judgment?
- When a creditor wins a lawsuit against an account holder, the court may award a money judgment in the amount of the delinquent debt, accrued interest, penalties and court costs. A civil money judgment gives the creditor legal power to garnish the account holder’s wages, seize her personal property, place a lien against her real property and garnish her bank accounts. While money judgments from creditors are not enforceable through the Treasury Department’s FMS, the money is not exempt from garnishment once it lands in the judgment debtor’s bank account.
- A creditor with a civil money judgment can garnish the bank account of the judgment debtor up to the amount awarded in the judgment. Individual states have different procedures for garnishing the money in a bank account. Banks are not responsible for tracing the source of the funds in a garnished account. When the bank receives the garnishment notice, they freeze the money in the account for a specific number of days before turning it over to the judgment creditor. The account holder can take appropriate steps to retrieve money that is exempt.
- The states also list specific exemptions for funds within the bank accounts, but certain federal funds are automatically exempt. Social Security income, veterans benefits, certain pension money and support payments are all exempt from garnishment. The proceeds from an IRS refund are not exempt from garnishment to fulfill a judgment. Debtors with exempt funds must file an appeal or an exemption claim form to have the money released from the judgment creditor’s collection efforts.
- The only types of debt that are subject to direct garnishment through the FMS are delinquent student loans, tax liabilities, dependent support and debt owed to the federal government from nontax related debt such as money owed from federal retirement plans, federal salary debt, vendor payment debt and debt resulting from Social Security overpayment or fraud. State agencies may garnish IRS refunds for debt related to unemployment compensation. Garnishing an IRS refund for any relevant purpose is called a treasury offset and must be authorized by the FMS.