You have been looking forward to your tax refund all year—the money that could help you catch up on bills, buy groceries, or pay off a small debt. Then, a letter arrives from the IRS titled “Notice of Intent to Offset.” What does this mean? What happens now?
A Notice of Intent to Offset is a legal warning, which means the IRS plans to use your federal tax refunds or other federal payments to cover delinquent debts.
If you ignore this notice, the refund you were expecting could be used to pay off these debts without any further warning. Additionally, there might be extra penalties and interest added to unpaid debt.
But here is the good news. You still have choices: You can set up a payment plan, dispute the debt if you believe there has been a mistake, or find other ways to manage the situation.
The Notice of Intent to Offset is serious but it does not have to be overwhelming. With the right steps, you can manage your debt and find peace of mind.
Why You Might Receive a Notice of Intent to Offset
If you have any of the following kinds of delinquent debt, the government takes action to recover these amounts. The IRS commonly offsets federal tax refunds, but several things can be subjected to offset:
- Unpaid federal taxes or state income taxes
- Child support debt
- Student loans previously due
- Unemployment benefits debts
Also, federal payments that can be reduced by the offset program:
- Federal salaries, including military wages
- Retirement payments, including military pensions
- Payments to contractors or suppliers working with the government
- Travel advances and reimbursements for government employees
- Some government benefits, like Social Security
- Tax refund based on state income
Risks of Ignoring the Notice of Intent to Offset
Your tax refund and other federal payments may be taken without further warning. Besides, you could also face more penalties, interest, or legal action. However, the federal government can take your entire tax refund, but can normally take only %15 of your payments for Social Security benefits. In any case, it’s important to respond quickly.
How the Offset Process Works
The Treasury Offset Program (TOP)
The Treasury Offset Program (TOP) withholds money from federal payments to pay for overdue debts to federal or state agencies. When your tax debt is over 90 days past due, your details will normally be submitted to TOP.
Bureau of the Fiscal Service (BFS)
BFS manages the Treasury Offset Program and handles the collection process. When BFS receives a debt from a federal or state agency, it checks to see if you are due any federal payments and collects information.
Steps to Take If You Receive a Notice of Intent to Offset
Once you receive a Notice of Intent to Offset, several steps occur:
Carefully Read the Notice
It will state which debt is being collected, how much you owe, and which agency is collecting it. Make sure you understand all the details, including any deadlines.
Verify the Validity of the Debt
Check if the debt mentioned is correct. Compare it with your records to confirm the amount and details. Contact the agency listed on the notice for more information if needed. This helps ensure the debt is accurate.
Dispute the Offset if You Believe It Is Incorrect
If you think the debt is wrong, you have the right to dispute it. Follow the instructions in the notice to file a dispute, and be ready to provide documents, like receipts or payment records, that prove the debt has been paid or is not yours.
Consider Paying the Debt or Setting up a Payment Plan
If the debt is valid, consider paying it off or setting up a payment plan. Contact the agency listed in the notice to find out your payment options. Resolving the debt quickly can prevent the offset from taking your tax refund or other payments.
Seek Professional Tax Advice
Did you find the whole process overwhelming? Then consider talking to a tax professional or attorney. At Precision Tax, we can guide you on the best steps to take and help you avoid mistakes.
How to Avoid IRS Offsets
- If you receive an offset notice, you usually need to pay the full amount owed within 60 days to stop the offset.
- If you have already filed for bankruptcy, collections are automatically put on hold, which can help prevent an offset.
- Making payments toward your debt or settling the outstanding amount may help avoid an offset, although it does not guarantee that federal payments will not be taken.
- You can set up a monthly payment plan with the IRS to pay down the debt gradually.
- You can change your tax withholding or estimated tax payments to reduce the amount of your federal refund that is available for offset. However, be careful not to withhold too little, as this could result in penalties for underpayment.
Common Myths About the Notice of Intent to Offset
Myth 1: The Notice Automatically Seizes All Your Assets
This is false. The notice only allows the government to take federal payments, like your tax refund. It does not mean all your assets, like bank accounts or property, will be taken. The focus is solely on using your tax refund or federal payments to pay what you owe.
Myth 2: Only Federal Tax Debts Result in Offsets
Offsets are not limited to federal tax debts. The government can also use this process for other debts, such as unpaid child support, state taxes, student loans, or overpaid benefits.
Myth 3: Ignoring the Notice Will Not Have Immediate Consequences
Ignoring it can lead to extra penalties, interest, or other charges will continue to be added to your unpaid debt.
Frequently Asked Questions
The IRS will use all or part of your tax refund to cover unpaid federal or state taxes, child support, or other government debts. Afterward, you will receive a notice showing how much of your refund was used.
You might stop the process if you can prove the debt is not yours or has been paid. To do so, follow the instructions in the notice to file a dispute and provide supporting documents. However, once the offset is underway, reversing it is unlikely, so act quickly.
Yes, you will receive a notice before any offset occurs. The Notice of Intent to Offset informs you of the planned action and gives you time to verify or dispute the debt.
You can claim an injured spouse allocation to recover your share of the refund. To do this, file Form 8379 with the IRS. And processing may take up to 14 weeks. You may also consider using the Married Filing Separately status to avoid future offsets, but it’s best to consult about the pros and cons first.
Let’s say the offset took your part of the tax refund; when would you get your remaining part? The notice will explain when you are going to receive the refund.
