Many taxpayers expect to receive the full amount of their tax refund after filing their return. However, in some cases, the IRS may withhold part or all of your refund due to outstanding debts through a process called a tax refund offset. McFadden Accounting is here to help you understand how this works and what steps you can take to protect your refund.

What Is a Tax Refund Offset?

A tax refund offset occurs when the Department of the Treasury Bureau of the Fiscal Service (BFS) deducts certain debts from your tax refund. The BFS, which operates the Treasury Offset Program, is not part of the IRS but processes tax refunds on behalf of the government.

If you owe any of the following types of debts, your refund may be reduced:

• Unpaid child support
• Spousal support
• State income tax debt
• Federally insured student loans
• Debts owed to federal agencies (e.g., Small Business Administration loans)
• Unemployment compensation overpayments

The IRS can also deduct unpaid federal taxes, but this is separate from the Treasury Offset Program.

How Will You Know If Your Refund Is Offset?

Before an offset occurs, the agency that you owe must send you a notice at least 60 days in advance (65 days for federal student loans). This notice explains the debt amount and your rights to dispute the offset.

What Can You Do If Your Refund Is Offset?

If you receive a notice of intent to offset, you should take immediate action:

1. Verify the debt amount – If you believe there’s an error, contact the agency that issued the offset, not the IRS or BFS.
2. Set up a payment plan – You may be able to negotiate a repayment plan to prevent the offset.
3. Request a review – If you believe you don’t owe the debt, submit evidence to the agency handling the offset.
4. File Form 8379 (Injured Spouse Allocation) – If you filed a joint return and the debt is your spouse’s, you can request your portion of the refund.

How to Avoid Tax Refund Offsets

One of the best ways to prevent a refund offset is to minimize your tax refund by adjusting your tax withholding or estimated payments to match your actual tax liability. Large refunds essentially act as an interest-free loan to the government, and a well-balanced tax strategy ensures you’re not overpaying throughout the year.

Get Expert Tax Advice from McFadden Accounting

If you have concerns about tax refund offsets or need help adjusting your tax payments, McFadden Accounting can help you create a personalized tax plan to avoid surprises.

Don’t let this opportunity slip away—take action now and claim what your business is entitled to!