Do you owe money to the IRS? Have you failed to pay off your tax balance, and it’s been a few months? If so, you could receive a Notice of Intent to Offset.
Usually, this notice informs you that the government is planning to seize your state or federal tax refund to pay off what you owe the IRS, but the IRS can also seize less common federal payments. Never ignore this notice, as it means the IRS is close to seizing your funds to cover your bill.
There are a few actions to take when you get a Notice of Intent to Offset, including verifying the information and letting the IRS know that you disagree with it, if applicable. However, it’s always a good idea to chat with a tax professional to find out what you should do next. This complete guide explains what a Notice of Intent to Offset really means and how to respond to resolve the matter quickly.
Why Did I Get a Notice of Intent to Offset?
The Bureau of Fiscal Service (BFS) within the Department of Treasury is the agency that sends out tax refunds. The BFS also manages the Treasury Offset Program (TOP), which is how the government seizes your tax refunds and other federal payments when you default.
If you have outstanding tax debt or other forms of government debt, you may get the Notice of Intent to Offset. This alert notifies you that the BFS intends to offset federal payments you’re supposed to receive so they can recover what you owe.
Read the notice carefully, and make sure the following information is correct:
- Your name
- Your tax refund amount
- How much the government is planning to offset
- The leftover refund after the offset, if any
- The government body you owe money to
- Contact information for the agency
Make sure everything is correct according to your own documentation. If you’re unsure what it all means, contact the agency on the form or talk it through immediately with a tax expert.
What is the Treasury Offset Program?
The TOP is managed by the BFS, which oversees tax refunds and other federal payments you may receive. The BFS also receives information from third parties about debts you owe aside from tax debt, such as student loan debt or unpaid child support.
The TOP is how federal liabilities are addressed so the government gets the money it’s owed — which it depends on to function. Aside from the IRS, other government agencies, such as the Department of Education, send information about federal debt to the BFS. If your debt is more than 90 days late and meets the qualification requirements for TOP, the next step will likely be the Notice of Intent to Offset.
You will have 65 days to dispute the notice if you disagree, but even if you agree, you should follow the instructions that are included in your notice carefully. You may be able to avoid the offset if you can pay off your balance or set up a payment plan.
Types of Debt Subject to Offset
The TOP applies to more than just tax debt, though tax liabilities are common reasons you may receive the Notice of Intent to Offset. Here are the types of debts that the government can offset with this method:
- Federal taxes: If you haven’t paid your tax bill and it’s been a while, and the IRS has tried to collect from you without a response, the BFS could offset your tax refund or other payments.
- Unpaid state taxes: The same can apply for the state taxes you owe but haven’t paid yet.
- Student Loans: Federal student loans are a type of government debt. The Department of Education provides the BFS with information on student loan delinquent payments.
- Child and spousal support: Another form of government debt that qualifies is support for a child or spouse.
- Unemployment overpayments: Certain types of unemployment-related compensation may qualify.
- Federal agency nontax debts: These include debts you owe from administrative matters like a salary overpayment or unpaid penalties.
Whatever kind of debt you owe the government, you’ll have to pay it off with the applicable agency to prevent the offset from moving forward. Ask a tax attorney if you’re unsure what to do about your federal government debt.
What Are Federal Payment Offsets?
Federal payment offsets differ from tax refund offsets. Instead of the BFS offsetting your liability with your tax refund, the government could also offset these types of federal payments:
- Social Security benefits
- Federal wages for government workers or military pay
- Military retirement pay or other federal retirement payments
- Contractor or vendor payments from the government
- Travel reimbursements
The good news is that the government can only offset a certain percentage of some types of federal payments. Federal tax refunds and state payments can be offset up to 100%, but military retirement payments and Social Security benefits can usually only be offset up to 15%. Contractor payments and federal wages can also be offset up to 100%.
State Refund Offsets
Keep in mind that the government can also offset your state income tax refund. States themselves can offset refunds if you owe state taxes, or they can be used for federal tax debts you owe.
So, say you don’t pay your federal tax bill and fail to contact the IRS about setting up a payment plan or getting another form of relief. However, you’re supposed to get a refund for state income taxes.
The IRS will first send you notices to try to collect what you owe in federal taxes. If you still fail to do anything, the state you live in or the federal government could offset your state tax refund to cover the federal tax debt.
Steps to Take if You Receive a Notice of Intent to Offset
What happens next if you get this notice in the mail? The first thing you do may depend on your situation and whether or not the information is correct. Here is an overview of steps to take if you get a Notice of Intent to Offset:
Immediate Actions
First, review the notice carefully. Look at the numbers and compare what the notice is claiming to what you reported on your tax return or in your records. If you have questions about how the IRS calculated something, use the contact information on the notice to reach out.
If you disagree with the findings and the notice, follow the steps provided on the document to dispute the matter. Work with a tax attorney who can help you understand the implications of these notices and the best ways to move forward.
Disputing an Offset
If you want to dispute the notice, you’ll follow the set process outlined in the notice. This will usually involve contacting the IRS and informing the agency about any errors or mistakes you believe you found. You will likely need to submit documentation supporting your claims.
You’ll have a set time period for disputing the offset. This will be included on your notice, but it is usually 65 days. If you don’t do anything within that time frame, the IRS and BFS may move forward.
Making Arrangements to Pay
If you agree with the notice, you need to take steps to get the debt paid off. This helps you avoid the BFS offset. You can pay your debt in full, set up a payment plan, or request a form of tax debt relief, such as an offer in compromise or injured spouse relief. The latter may be possible if the offset is related to a spouse’s debt.
Talk to a Tax Expert
The good news about any type of tax issue or notice is that you don’t have to deal with it alone. These issues are common, and there are tax attorneys out there who can help you navigate through them. Talk to a tax professional about what your notice means, how you got here, and how to rectify the issue in the way that works best for you.
Frequently Asked Questions about the Notice of Intent to Offset
What Is a Debt Offset Notice?
If you owe tax debt to the IRS or owe another form of federal debt, the BFS relies on the TOP to offset federal payments to cover your debt. This includes any state or federal tax refunds you may be owed.
Will an Offset Delay My Refund?
Receiving a Notice of Intent to Offset means the government is preparing to offset your federal payments to cover your debt. Your tax refund may be reduced or delayed in this case. Avoid delays and ensure you get your full refund by paying off the debt you owe as soon as possible.
Can an Offset Be Reversed?
If the issue gets that far and your funds are offset, typically, it cannot be reversed. However, you may be able to get it reversed if you can show the government you qualify for injured spouse relief or that the offset causes financial hardship for you.
Injured spouse relief applies if the government seizes a payment of your for your spouse’s debt. For example, if you file a joint tax return and the government seizes your refund for your spouse’s unpaid child support, you can file injured spouse to get your portion of the tax refund back.
What Should I Do If the Offset Is for Student Loans?
In some cases, if you default on your student loans, the BFS can decide to offset your tax refund to apply it to what you owe. If this is the case, you may want to consider consolidating your loans, which may take away the default status.
How Much Will the IRS Offset?
The exact amount the government will offset from your refund or other federal payment will depend on how much you owe, how much your refund is, and whether you have other tax and debt issues. The IRS could even offset refunds you’re owed in the future if you have a high balance.
How Can I Avoid Future Offsets?
The best solution is to stay current on your taxes and any other liabilities you owe the government. If you can’t pay your tax bill right away, the IRS will work with you, whether via an offer in compromise, currently not collectible status, or an installment agreement. Never try to ignore your tax bill, as it may lead to a Notice of Intent to Offset and other issues such as federal liens, levies, building penalties, and legal trouble.
Work with Wiggam Law on Your Tax Issue
Receiving a Notice of Intent to Offset can be stressful, especially when you were counting on your tax refund or other government payment. Even if you still can’t pay off what you owe, you need to act right away. Setting up a payment plan is one way to get back in good standing. You can also pay your balance or apply for relief.
Don’t try to find a solution to a BFS/IRS offset on your own. The team of experienced tax attorneys at Wiggam Law is here to help you navigate your Notice of Intent to Offset and any other tax issue you may be experiencing. We will help you understand tax law and pursue the right option for tax debt resolution.
If you want to learn more about these options, contact Wiggam Law. Call us at (404) 233-9800 or fill out our online consultation form to schedule a meeting with one of our tax attorneys today.