Can Creditors Put a Hold on Your Taxes?
- Individuals who receive regular cash benefits through government benefits programs --- such as disability insurance, Medicaid, SSI, food stamps or unemployment insurance --- and are overpaid may be subject to a hold on their taxes under certain circumstances. Generally, the overpaid benefits recipient is notified by mail when the error is discovered and offered a payment arrangement. If you decline the payment plan offer --- or accept and default on it --- the agency will enforce collection activity. This may result in reduced or canceled future benefits, wage garnishments when applicable or a hold on your tax refund to redirect funds to the debtor. Recipients of overpaid government benefits due to fraudulent claims may be subject tax interception, fines and imprisonment.
- Citizens who are behind on business taxes or owe back property taxes are prime candidates to experience holds and offsets of their federal income tax returns. The Internal Revenue Service has direct access to all of your tax information --- how much you owe, and what is owed to you. The IRS also reserves the right to deduct any past due balances for property or business tax from your federal refund. If you owe back taxes, you can be fairly certain that after filing you will receive a notice of offset of your refund. Typically, your refund will be held for deduction of past due amounts before your receive the remainder of the return. If your debt exceeds the refund amount, you entire return can be seized each year until the debt is repaid.
- College students who have defaulted on student loans and financial aid contracts are also probable candidates for government administered wage garnishments, intercepts and offsets of tax refunds. When you are past due on federal student loan payments and all other means of collection --- collections calls, postal notifications and wage garnishments --- have been exhausted, the IRS is notified of the debt and you will be scheduled for an offset. What this means, is that once you file your tax return any portion of your tax return --- up to its entirety --- is redirected to the appropriate agency to satisfy the debt. If you owe less than the defaulted loan amount --- including interest --- you will receive whatever funds are left after a short holding period. If your tax refund does not cover your debt, future offsets may be administered.
- Past due child support payments are about the only personal debt that the government will get involved in collecting. If your payments are deducted from employment earnings and allocated through a government regulated disbursement agency, you may be subject to a tax interception that will place a hold on your refund if you fall behind. The amount in which you may be delinquent before collection activity is ordered varies by state. Once you have exceed your state regulated debt guidelines, you will be notified by the disbursement agency of the pending tax intercept and given an opportunity to appeal the decision. During this period a hold will placed on your taxes. If you are found to be eligible for tax interception, a portion --- or all --- of your tax refund will be redirected to the legal guardian or custodial parent of the child.