Posted by Karen Munoz, EA

Understanding Treasury Offset Program (TOP) and Its Effect on Your Refund

Understanding Treasury Offset Program (TOP) and Its Effect on Your Refund

A refund offset is a process in which the taxpayer will not get the full refund; instead, the excess federal income tax will be used to service unpaid government debt. 

Many people eagerly look forward to their refunds every year, which could come via direct deposit or a check. The presence of an outstanding government check, however, might reduce your refund or altogether cancel out. Such debts are child support, federal student loan, and others. 

Here is necessary information about the treasury offset program. 


Understanding a refund Offset 

The treasury offset program is coordinated by the Bureau of Fiscal Service – one of the arms of the Treasury Department. The Bureau is like a collection agency on behalf of the Federal (at times state) government.

Interestingly, it is not only your federal tax refunds that TOP can affect. Some federal payments listed below are also eligible:

  • Retirement benefits

  • Wages

  • Payment to vendors and government contractors

  • Reimbursement and advance from travels 

  • Social securities 

Before Uncle Sam sends your tax refund, they will access the TOP database to compare the information. Should there be your TIN and name with debt in the database, your payment will go to the government agency that you owe the debt. 

There are few cases in which federal law reduces the amount they can withhold from some federal payment. The treasury department website has a full list of such.


How to Know if you are in the TOP Database 

As long as your debt is above 90 days, the agency will refer it to the TOP database. This should not surprise the taxpayer because most agencies (federal and state) will send you notices of the debts. They will also inform you of methods of repayments and other rights that you have. 

Should the approach prove unhelpful, the agency will refer your debt to the Fiscal Service Bureau, informing them that you owe a delinquent debt. You will get a notice from the Fiscal service informing you that your debt will be subjected to an offset. There will also be information on getting in touch with the agency charged with resolving your debt. 


How to Avoid Having the TOP acquire a Tax Refund 

The only way to stop or avoid having a refund offset is to pay the debt. 

For people who have paid the debt thoroughly before, or believe you have no debt for whatever reasons, but your name is in the TOP database, the best approach is to contact the agency who forwarded the TOP's indebtedness.

The Treasury Offset Program can be said to be a clearinghouse. They have no power to alter the amount owed; neither can they ignore the offset order. The agency that reports the debt is charged with handling this. 

In some cases involving married couples filing jointly, one of them could have their refund withheld for the other spouse's debt. In this case, the innocent party can file Form 8379, which is the "Injured Spouse Allocation." It can help you get back your share of the refund. 

It is also a good idea to file Form 8379 alongside your tax return to prevent the IRS from offsetting your entire refund. There is also the option to file this later if you discover that there will be an offset of your refund.


Conclusion 

Everyone that owes any debt, whether at the federal or state level, should not expect to receive their entire refund. The government is proactive in getting their hands on eligible payments to satisfy debts left unpaid. Billions of dollars have been collected over the years for various state and federal agencies to help with outstanding debt.  

It is a good idea to be proactive about repaying your state and federal debt. A little collection could have a significant impact on your tax refund.


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THANKS FOR VISITING. 

Karen Munoz, EA
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