Tax Refund Offset Reversal 2022: The Complete Guide

Stanley Tate smiling.

Stanley tate

Student Loan Lawyer

$400M+ student loans managed

listen to this post

The Treasury Offset Program isn’t suspended, but the IRS will wait until November 2022, before it offsets tax refunds for student loan debt owed to the Department of Education. If your money is taken for unpaid taxes, child-support, etc., you can try to get it back by requesting a tax refund offset reversal.

Each tax season, IRS computers flag taxpayers' accounts with delinquent student loan debt so the government can take back the money it's owed. But this year is different. The economic battering Americans have suffered from the coronavirus pandemic has led to the federal government putting a temporary hold on that process until later this year.

The Department of Education will not start taking tax refunds until November 2022 — unless President Biden extends the freeze once more.

Ahead, you'll learn how to avoid a tax refund offset and, if your refund has already been taken, how to get some of it back with a hardship reversal.

Is the Department of Education taking tax refunds in 2022?

The coronavirus freeze on student loan payments is scheduled to end August 31, 2022, which will allow collection activities like wage garnishment to restart. But the Education Department recently updated the Frequently Asked Questions on its Covid-19 relief page to reflect that it would be extending the pause on taking tax refunds and Social Security benefits until November.

Following that change, the Department of Education and guaranty agencies for FFEL Loans will wait until November 2022 before taking tax refunds for defaulted student loans.

Learn More: When Do Student Loan Payments Restart?

Why does an IRS tax refund offset happen?

A tax refund offset happens because you fall behind on debts owed to the government. Federal law allows state and federal agencies to use the Treasury Offset Program to withhold your refund to repay those debts. If an agency reports your debt to the TOP, the IRS will offset your refund to repay obligations such as:

  • Past due child support.
  • Defaulted federal student loans.
  • Unpaid federal income taxes.
  • Unpaid state income taxes.
  • Unpaid unemployment compensation debts.

In the past, the IRS could also take your child-tax credit to recoup money for student loans. That policy is changing this year following an announcement from Education Secretary Miguel Cardona that the department would not take the child-tax credits — even after the payment pause ends — for borrowers in default.

Learn More: How to Stop Student Loan Wage Garnishment

Did you know that offsets for child support are done by the state in which the child support order was entered rather than the federal government? The agency will file a claim with the Bureau of the Fiscal Service, and you'll be entered into the Treasury Offset Program. Once that happens, your tax refunds will be offset until you become current on your child support obligations.

Tax-Refund Offset Coronavirus

Even if you owe student loans, you still can get your tax refund due to the Covid-19 pandemic. In the early months of the pandemic, former President Trump paused the interest rate and collection efforts for most defaulted student loans. President Biden extended the student loan payment pause when he first took office and again this past December.

In addition, some states have also put a hold on refund offsets during the pandemic. For example, California stopped taking refunds until July 2021. You can check with your state to see what relief might be available to you.

Learn More: $10,000 Student Loan Forgiveness

How to stop the Department of Education from taking your refund

You can stop defaulted student loans from taking your refund by digging out of default. The U.S. Department of Education offers three options to bring accounts into good standing:

Not only does getting out of default protect your refund, but it also reinstates your eligibility for student loan forgiveness programs, affordable repayment plans, and new loans and grants from Federal Student Aid.

If you file your tax return early, you may be able to get your refund back without getting out of default. Just keep in mind that if you wait too long or the IRS doesn't process your return until after August, you're at risk of having your refund taken to pay your student loans. The best way to avoid having your refund taken is to get out of default.

Learn More: Student Loan Rehabilitation CARES Act — How it Works

Which student loans can garnish refunds?

Only federal student loans that are in default can be used by lenders to garnish your tax refunds. Your refund is safe from tax garnishment if you're in deferment, forbearance, or repayment.

Loans eligible for student loan tax refund offset include:

  • Direct Loans
  • Direct Consolidation Loans
  • Federal Family Education Loan Program (FFELP) Loans
  • Federal Perkins Loans

Private student loans cannot be used to offset your tax refund or take money from your bank account without the lender first suing you and then getting a court order.

Learn More: Do FFEL Loans Qualify for PSLF?

How do you find out if your income tax refund will be garnished?

The agency that schedules your debt for offset is supposed to send you a Pre-Offset Notice before it withholds your refund. But many people never get it because they moved and never updated their contact information.

If you didn't get that notice, call the Treasury Offset Program at 800-304-3107. The TOP Interactive Voice Response System will use your Social Security number to verify that you are in the system. The system will play an automated message on who to call for your specific debt if your name is listed.

If you learn that your tax refund might be subject to offset, you can request an extension from the IRS to file your taxes later in the year without penalty. This will give you more time to work out what to do next to have your account removed from the program.

Options for a tax refund offset reversal for student loans

If your refund is taken for student loans, you can request a tax refund offset reversal if:

  • You've already entered into a repayment agreement or rehabilitation program with the Department of Education and made monthly payments under that agreement.
  • Your loans aren't really in default, and an error was made when you received the notice. This may happen if a Social Security number or name was entered incorrectly.
  • You've filed for bankruptcy, and your case is still open. This can also apply if the student loan was discharged in bankruptcy. Student loans being discharged in bankruptcy is extremely rare.
  • You have been the victim of fraud or identity theft.
  • You've become totally and permanently disabled.
  • Your school has closed, and you're granted a closed school or false certification student loan refund.
  • You have an extreme financial hardship — more on that below.

How do you request a tax refund offset reversal for financial hardship?

Proving you're experiencing extreme financial hardship takes work and requires a lot of follow-ups, but it's not impossible. The following process applies for student loans and can be used to try and reverse a tax refund offset.

  • Step 1: Identify who took your tax refund.
  • Step 2: Contact the company (Default Resolution Group or guaranty agency) that took your return fund to find what information you need to submit (hardship packet).
  • Step 3: Submit the necessary information.
  • Step 4: Follow-up to confirm that they received the necessary information.
  • Step 5: Wait to see if they approved your hardship request.

How do I dispute a tax refund offset? To dispute a tax refund offset, you'll need to prove you've experienced hardship that prevents you from making your student loan payments. This may entitle you to a hardship refund.

Your loan holder or the collection agency will want to know the details of the hardship you're facing. Depending on the agency, they may accept any of the following as proof of extreme financial hardship:

  • Notice of a pending eviction or foreclosure
  • Homelessness
  • Utility disconnection or shutoff
  • Exhausted unemployment benefits

To get your refund back, you'll need to be able to prove that you are having severe financial difficulty.

Completing your hardship packet

The packet you receive will give you instructions on how to submit the hardship request form and where to send the form. Follow the instructions exactly and fill the form out promptly.

Afterward, call the lender and confirm your hardship packet was received and that they have all the necessary information to process your request. If not, find out exactly what the agency needs to complete your request.

How long does it take for a tax offset to be removed?

It can take up to 6-8 weeks to get a tax refund reversed after it's been offset for student loan debt. However, a tax refund offset reversal can take up to six months for a jointly filed return.

Can I track my offset refund?

You may not be provided with any tracking number as refund checks are sent via U.S. mail. In order to locate the appropriate agency, you can contact the Treasury Offset Program at 1-800-304-3107.

Preventing a tax refund offset

If you’ve already defaulted, you’re not alone: According to the Education Department, 9.7% of student loan borrowers default within three years of entering repayment. Here's how you can get out of student loan default and protect your tax refund from being offset.

  • Apply for loan rehabilitation. You can return your loans to good standing and remove the default from your credit report by making nine monthly payments over 10 months. Your payment amount will be 15% of your discretionary income or a smaller amount based on your overall finances. Rehabilitation is a one-shot program. So consider enrolling in an income-driven repayment plan after your rehabilitation period ends to make your payments more manageable. These plans tie your bill to your income and family size. Plus, they have a bonus: IDR forgiveness.
  • Apply for consolidation. Combine your loans into one new loan and make three full, on-time consecutive payments or agree to make payments on an IDR plan to get your loans out of default. You can submit a Direct Consolidation Loan for free at studentaid.gov. Bonus: you can choose a new loan servicer.
  • Negotiate a settlement. Federal student loans typically settle between 85-90% of the outstanding loan balance. And that large amount has to be paid within 90 days. Ask the collection agency representative about your settlement options.
  • Check out refinancing options. Although uncommon, some lenders are willing to refinance student loan debt that's delinquent or in default for borrowers with stable income and good credit scores.
  • Request a review. A prompt request for review will put the offset on hold. You'll need to file the request within 65 days after the notice date or 15 days after your request and obtain your loan file.
  • File bankruptcy. Both a Chapter 7 and Chapter 13 bankruptcy protect your refund, paycheck, and other federal payments (e.g., Social Security benefits) from being taken to repay debts. The bankruptcy process can also help you get rid of the defaulted loan if you can prove undue hardship.

Regardless of which one you choose, all of these options are better than ignoring the debt and hoping it goes away. If you're not sure which one is best for you, a student loan lawyer may be able to help.

Keep your refund, lose the headache.

It’s never a fun process to work with the IRS or any government agency because there are forms to fill out and hoops to jump through. Understandably, you may not know all the options available to you. That's where I can help.

If you have student loans in default and are facing tax refund offsets, I want to work with you. Schedule a free 10-minute call with me today. Together, we can go over your situation.

In a typical call, we'll discuss what options you have and help you decide what's best for you to get on top of your defaulted student loans before you lose another refund.

UP NEXT: Student Loan Forgiveness Programs

Stop Stressing.
Get expert help
Stanley Tate outside in snow.
Hey, I’m Tate.

I'm a student loan lawyer that helps people like you with their federal and private student loans wherever they live.

Read a bit about me & how I got started with student loans.

get expert advice