Wondering how to stop student loan tax garnishment from claiming your tax refunds? Your first step is addressing the default status of your federal student loans before you file your tax return.
Thanks to recent relief measures extended by the U.S. Department of Education due to the COVID-19 pandemic, collections through Treasury offset — like withholding tax refunds and Social Security benefits — will stay paused for at least six months after the student loan payment pause ends.
This means you won’t have to worry about losing your tax refund for the 2022 tax season.
Here are some strategic steps to protect your tax refund:
Dodge Default: Rehabilitation is an option – make nine sensible and affordable payments within 20 days of the due date for 10 months straight. Alternatively, bundle up your defaulted loans into a new Direct Consolidation Loan to clear their default status. You can also look into the Fresh Start Student Loan Program. More on those three options below.
Look at Income-Driven Repayment Plans: Payments under these plans are based on your income and family size, which might ease your financial load.
Think About Deferment or Forbearance: Are you going through a temporary financial crunch? You might qualify for a deferment or forbearance to press pause on your federal student loan payments.
Ask for a Review: Received a notice of tax refund offset? Challenge it by asking for a review from your loan servicer or the Department of Education Default Resolution Group.
Consider a Student Loan Tax Offset Hardship Refund: If your hardship is more serious, you might be able to claw back the money taken from your tax return by applying for this refund.
Rejig your Tax Withholdings: If your refunds are hefty, you’re essentially lending to the government interest-free. Adjust your withholdings to reduce your tax cut from your paycheck, helping you sidestep a big tax refund that might get garnished.
So, keep in mind, despite the burden of student loan tax garnishment, there’s hope on the horizon.
The government has suspended garnishment of tax refund for student loans until mid-2023, and the Treasury offset, including tax refunds, will stay on hold for at least six months after the payment pause ends.
Those eligible for the Fresh Start for defaulted loans will continue to get this collections relief through one year after the payment pause ends.
If your student loan-related tax refund has been offset since March 13, 2020, don’t hesitate to reach out to the Treasury Offset Program at 1-800-304-3107 to see if you can get some of that money back.