Unless you filed an extension, tax season is thankfully behind you this year. Hopefully you were fortunate enough to get a refund. Are you already thinking about what you might do with next year’s refund, and want to make sure you get one? Did you know that there are some situations under which the IRS can seize refunds?
In nearly every circumstance, the IRS only withholds refunds for one of these five reasons. Taking just a moment to learn about them can help to prevent these things from happening to you.
You owe back taxes. If you failed to pay taxes in previous years, the IRS will keep any future refunds until the debt is repaid. Occasionally, this can happen with state taxes as well.
You received too much unemployment compensation at some point. Many people who receive unemployment compensation are subject to accidental overpayments. Your state can report the debt to the US Treasury, and they will take it from your income tax refund.
You defaulted on student loans. Student loans are one debt that cannot be discharged in a bankruptcy, so it feels as though you’re definitely stuck with it for life. However, the government provides so many deferment, forbearance, and income-based repayment options that there is really no reason to ever default on these loans. If you do, the IRS will definitely seize your tax refund checks.
You’re behind on child support. Your state can report this debt to the Treasury Department, and the amount will be withheld from any tax refunds you’re due to receive. This can happen even after your child is grown, too; as long as the debt exists, your state will pursue it.
You’re behind on spousal support. This situation is more rare, but sometimes spousal support is collected via tax refunds.
As you can see, these situations can be prevented and hopefully you will never find yourself unexpectedly missing an income tax refund. As always, give us a call for more financial planning advice. We can help you establish your short- and long-term goals, and create a plan to accomplish them.