Will your tax refund will be offset? Here’s how it happens.

Stanley Tate smiling.

Stanley tate

Student Loan Lawyer

$400M+ student loans managed

listen to this post

If you stop making your federal student loan payments, eventually, that loan will go into default. Federal student loans enter default after you’re 270 days or 9 months late making a payment. You'll also risk your debt being sent to the Treasury Offset Program, or TOP.

The federal government can use its many powers to get back the money it lost from bad loans. Unlike private student loan lenders that need to sue you before garnishing your wages, the federal government already has the authority to reach into your pocket — or your tax refund.

The Treasury Offset Program, Explained

The Treasury Offset Program (TOP) is used to offset federal income tax refunds, tax credits, or any other federal payment program to pay off certain outstanding debts owed by taxpayers. This process is governed by federal law.

When the federal government makes a payment to you, such as a tax refund or social security payment, it can withhold some or all of that money. This is a measure to get back the overdue debt you owe, such as defaulted federal student loans.

This act of withholding money to collect on an overdue debt is called an administrative offset or offsetting the payment.

The good news: If you have credit cards, car loans, or mortgages that are behind, your lenders can’t reach out to the TOP to get their money back. Federal offsets can only be used for loans or debts that are owed to the government.

The types of debts that can fall under the Treasury Offset Program include:

  • Federal student loans
  • Federal and state tax debts
  • Backed child support
  • Unemployment compensation debts

Like it or not, the Treasury Offset Program helps the government recoup some or all of the money they lent out to borrowers who don’t pay. Tax refund offsets are sometimes necessary to prevent the government from losing the money they lend.

Who is at risk of an offset?

When it comes to having tax refunds or other federal payments offset, no one is exempt. If you have a social security number, the federal government can find a way to collect on what you owe. (They also can offset businesses through their Federal Employer Identification Number.)

Anyone who has unpaid debts to the federal government, or some state agencies, could be at risk of an administrative offset.

Additionally, there is no statute of limitations for federal student loans, meaning that you could deal with the Treasury Offset Program indefinitely. If you default on your federal student loans, you can be at risk of having your tax refunds or other federal payments offset.

Does the IRS run the Treasury Offset Program?

The Bureau of Fiscal Service (BFS) runs the Treasury Offset Program, a division of the U.S. Department of the Treasury. Although the IRS is part of the Treasury Department, it’s a separate agency.

What is the difference between the Treasury Offset Program and the IRS? The difference between the Treasury Offset Program and the IRS is that they are two different Department of the Treasury agencies. The IRS manages taxes, while the TOP manages collecting unpaid debts for the government.

Different federal agencies within the government issue loans out to individuals and businesses. When these loans aren’t repaid, they report the debt and the borrower to the Treasury Offset Program to collect the money.

How do I know who requested the offset?

Along with federal government agencies, state agencies can also contact the Treasury Offset Program. Usually, this is regarding state income tax or state debt that isn’t paid. However, state government agencies have a lower priority than federal agencies within the TOP.

The agencies that can report unpaid balances to the TOP include:

  • The Department of Education for federal student loans
  • State child support services
  • The Internal Revenue Service.
  • The Securities and Exchange Commission (SEC)
  • The Federal Trade Commission (FTC)

How do I find out who offset my taxes? To find out what agency offset your taxes, call the Treasury Offset Program Call Center. Their telephone number is 1-800-304-3107. You can also contact the department or agency that issued your loan or read through your offset notice.

How does an offset happen?

The good news is, getting your debt sent to the Treasury Offset Program isn’t designed to be a blindside. There are standard practices to let you know your refund or other payment is at risk.

How do I know if my refund will be offset? You can know if your refund will be offset because the government agency must inform you first. Before an agency sends your debt to the TOP, they have to send you a notice of intent to offset your debt and let you know your rights and repayment options.

If you don’t reply to the agency’s notices and work out a repayment plan, they will inform the Bureau of the Fiscal Service that you have a delinquent debt.

The BFS will send you a letter notifying you that your debt is in the TOP database and that your tax refunds will be offset. The letter will also provide the contact information of the agency to resolve your debt.

When your tax refund is offset, you will get another notice letting you know the following information:

  • Which agency or creditor will receive the offset
  • How much of a refund you would have received
  • Your debt amount

The notice will also highlight what portion of the refund you can expect to receive after the offset — if any is left. The BFS will then withhold the money from your refund, pay the agency you owe the debt to, and inform the IRS.

You’ve received an offset notice. Now what?

Getting a letter from the federal government is never fun and can be downright intimidating. Here’s what to know: You won’t go to jail if you’ve defaulted on a federal student loan. However, it’s not a situation to ignore or take lightly.

The best thing you can do is to review the notice, look at your student loan information, and contact the agency and talk to them. If that sounds like too much to handle alone, that’s understandable.

Talking with a student loan lawyer — like me — can help you sort out your situation with a professional who knows how to deal with these kinds of things. You can ask whatever questions you have and get answers that pertain to your particular situation.

A student loan lawyer may even be able to find ways to get around the offset in ways you may not have even thought of, like injured spouse relief. Lawyers can also help you file forms to help you prove your case if you believe the offset was a mistake.

Tax offsets and student loans during COVID-19

Due to the COVID-19 pandemic, the federal government has taken many measures to help student loan borrowers.

The CARES Act that was passed in 2020 put all federal student loans on automatic forbearance and reduced the interest rates to 0%. This act was designed to provide relief for borrowers struggling with their student loan payments.

The CARES Act also put a pause on all debt collection efforts for federal student loans that are delinquent or in default. This pause includes wage garnishment and even the Treasury Offset Program.

Your tax refunds won’t be offset if you filed your 2020 federal tax return between March 13th, 2020 and September 30, 2021.

Additionally, the 3 stimulus checks sent by the federal government were exempt from the Treasury Offset Program. Federal student loan borrowers in the TOP database were still eligible to receive their entire stimulus check.

As it stands, the current measures are set to last until September 30, 2021, making it an excellent time to get defaulted student loans in order.

Dealing with an offset? Let’s talk.

Dealing with debt collectors isn’t fun; I get it. However, it can make a huge difference. If you’re falling behind on your federal student loan payments, you can work with your lenders to find ways to bring your loan back into good standing.

Nevertheless, if you continue to ignore the issue, you shouldn’t count on receiving your entire tax refund. The federal government is pretty good at recovering money that is owed to them.

If you’ve received treasury offset notices, schedule a free 10-minute call to get my honest opinion on your situation. Let’s work this out together so you can keep future refunds.

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