Debts you owe to the government can deplete your tax refund.
Form 1040 Tax Forms image by Viola Joyner from Fotolia.com
If you're expecting a big tax refund, don't count on it -- and if you owe money to the state or federal government, your refund may be smaller than you think. The federal Treasury Offset Program gives the U.S. Treasury Department the right to withhold your federal tax refund to satisfy certain types of debts you may have incurred. While a refund offset can't be initiated to satisfy debt collectors or creditors who've filed a judgment against you in court, they can be implemented for a number of other debts, from child support to student loans.
The IRS pays itself first, so federal tax debts take precedence over other types of debts when it comes to offsetting your tax refund. If you failed to pay taxes due in previous years or you owe money
to the IRS for any reason, the agency will partially or fully offset your refund to collect these funds.
Non-tax Federal Debts
Any past-due child support payments may be taken out of your tax refund. Typically, the federal tax offset programs kicks in if you owe more than $150 in state-assigned tax support payments or more than $500 in child support payments to an individual, such as your child's custodial parent. If the amount of the past due child support exceeds your refund, the IRS may continue to garnish your refund for multiple years until the debt has been satisfied.
If you owe state income taxes to any state, whether you still live there or not, the IRS can offset your refund to take care of these debts. The government can claim this money even if you have a payment plan in place with the state that you owe money to.