Tax Refund Offset refers to a process where a portion or all of a taxpayer’s tax refund is redirected to pay off certain debts owed to government agencies or other creditors. This can occur for various reasons, including unpaid federal or state taxes, student loans in default, or child support arrears.
The tax refund offset is typically administered by the Treasury Offset Program (TOP), which helps government entities collect overdue debts. For example, if a taxpayer owes $1,000 in back taxes and is due a tax refund of $1,200, the IRS may withhold $1,000 from the refund to settle the tax debt, resulting in a final refund of $200.
Taxpayers can be notified of a refund offset through a notice from the agency that applied the offset, and they may have the right to contest the offset under certain circumstances.
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