Can Tax Refunds Be Intercepted by Debt Collectors?

Is it possible for the Internal Revenue Service to intercept part of your paychecks in order to compel you to pay off the obligations you owe? For example, what if the Internal Revenue Service (IRS) stole your tax return in order to pay down your federal student loan debts?

 

 

Learn about the IRS debt collection procedure if you are having trouble paying your student loans and debt collectors are knocking on your door. This can help you avoid having your debt collectors use your situation against you.

 

 

 

The identity of the debt collector determines whether or not the debt collector has the authority to seize your income tax return. The federal government, as well as state agencies that collaborate with the federal government, have the authority to seize all or a portion of your income tax return. Private debt collectors, on the other hand, cannot.

 

 

Continue reading: What Happens If You Are unable to Make Federal Tax Payments?

The Internal Revenue Service (IRS) and private debt collectors
Neither the Internal Revenue Service nor the Treasury Department will take your tax refund and use it to pay for credit cards, vehicle loans, or home loans. This is true regardless of whether the debt has been sold to a debt collection agency or if a judgment has been entered against you.

 

 

 

It’s possible that your tax return may be intercepted and used to settle any outstanding obligations you have with the federal government owing to unpaid taxes or legally obliged payments, such as child support, and that your refund will be used to pay these bills. Private debt collectors, on the other hand, will be unable to get your tax refund in this manner.

 

 

 

If you owe federal taxes that are past due, the IRS has the right to retain your tax refund. Your state may be able to have your federal return seized in order to pay back state taxes that are past due or to collect overdue child support. Offsets are what they are referred to as.

Furthermore, your tax return might be used to pay off other federal bills that are not directly linked to taxes. Federal agency nontax debts are the name given to these types of obligations. These include government insured school loans and unemployment assistance that have been acquired via deception or fraud.

Can Tax Refunds Be Intercepted by Debt Collectors?

 

 

More information may be found at Where Is My Tax Refund: An Easy Guide.

 

 

 

Exceptions to the Tax Intercept

It is possible to utilize your whole refund to pay off debts that are owed to one of you if you are married and file joint income tax returns with your spouse. If you find yourself in a scenario where this may occur, it’s a good idea to file two tax returns.

 

 

Another option is to submit Form 8379, Injured Spouse Allocation, with the IRS in order to attempt to recover a portion of the return for the spouse who is not legally liable for the debt. It is possible to send Form 8379 together with your combined tax return, or you may submit it separately at a later date.

 

 

 

Although it may seem like picking hairs, the IRS has the authority to withhold your return. Holding differs from intercepting in that they do not spend the money for anything at the outset, at least not immediately. For example, if your spouse has submitted a Form 8379 and it is still in the process of being processed, they may withhold your return. Additionally, they may withhold your refund if they are still processing your return.

 

 

 

Issues with the Internal Revenue Service’s Private Debt Collector

When it comes to tax collection, the Internal Revenue Service (IRS) is often referred to as the United States’ tax collection agency. While the IRS is in charge of tax collection, they also have a contract with four commercial collection firms to pursue old unpaid tax obligations that have accrued over time. The general consensus on how things is going is positive.

 

 

 

Although the Taxpayer Advocate Service is an independent agency, it is housed under the Internal Revenue Service. They are in responsible of safeguarding the rights of taxpayers. When they took office in April 2018, they instructed the Internal Revenue Service to cease sending debts to commercial collection firms for taxpayers with incomes less than 250 percent of the federal poverty line.

 

 

 

The IRS reacted by acknowledging that it can do more to identify taxpayers who are facing financial difficulty and by agreeing to exclude them from future collection efforts. However, as of 2021, the Internal Revenue Service continues to rely on commercial debt collection companies to collect outstanding inactive tax bills.

 

 

 

IRS Private Debt Collectors Make Their Debut

IRS private debt collectors have been around for a long time. Programs to recover tax debts via the employment of commercial collection companies have been attempted in the past and failed. The IRS’s current program, which began in 2017, has been in place since then.

 

 

 

In order to contact taxpayers about accounts on which they are no longer actively working, they selected four collections firms to contact them. The objective was to attempt to collect some of the estimated $920 million in past taxes that the IRS had categorized as uncollectible. The IRS had classified the back taxes as uncollectible. In theory, the money would be enough to cover the cost of the program and then some. However, things haven’t worked out that way.

 

 

 

 

IRS Private Debt Collectors Face Difficulties

For starters, the collection firms must get beyond the fact that the Internal Revenue Service has been assuring the public for years that they would never contact individuals by phone in order to collect their debts. 

 

 

They’ve said that if you get a phone call from someone claiming to be from the Internal Revenue Service, hang up immediately. While the collection agencies are not affiliated with the IRS, they do serve as agents for the agency. As a result, receiving a phone call from one of them may be perplexing.

 

 

 

The Internal Revenue Service is addressing this issue by notifying taxpayers in writing that their account has been assigned to a commercial collection firm for collection. The collection agency then sends you a note to confirm that they have obtained possession of your account.

When these agencies phone, they are expected to represent themselves as contractors working for the Internal Revenue Service to collect a tax due. 

 

 

 

No payment via prepaid debit card, iTunes gift card, or other gift certificate will be accepted by an IRS private debt collector. They will send you to the IRS website to make an electronic payment, or they will instruct you to write a check made payable to the United States Treasury to the address shown above.