What is a Debt Offset Notice? Notice of Intent to Offset

Have you received a notice of intent to offset? That means that the IRS plans to keep your tax refund to cover an outstanding tax bill or another type of debt. The offset program allows the federal government to keep your federal tax refund or other federal payments for unpaid taxes, child support, unemployment compensation overpayments, federal student loans, and several other types of liabilities. 

Wondering why you received a notice of internet to offset? Worried that you won’t get your refund? Then, call us for help as soon as you receive this notice. At the W Tax Group, our tax attorneys can help you deal with refund offsets and other tax issues. 

What Is a Notice of Intent to Offset?

The intent to offset notice is a letter that the IRS sends out to taxpayers when the agency plans to keep their tax refunds and apply them to outstanding debts. You may also receive a notice of intent to offset if the government decides to take seize a federal payment due to unpaid liabilities.

The Department of Treasury’s Bureau of Fiscal Services (BFS) issues IRS tax refunds and handles the Treasury Offset Program (TOP). The BFS seizes tax refunds and other federal payments when you have unpaid taxes or other government liabilities. 

The notice of intent to offset should include your name, the amount of your refund, the amount of the offset, and how much of a refund you will receive after the offset. It also includes the name of the agency you owe money to, how to contact them, and how to dispute the offset. 

What Is a BFS Offset?

Because the Bureau of Financial Services handles offsets, they are often called a BFS offset. When the BFS seizes your tax refund for unpaid federal taxes, it’s often called a BFS IRS offset. When the BFS seizes your tax refund for other debts, it’s just referred to as a BFS offset. 

In all cases, the result is the same — you have lost your refund or federal payment due to an unpaid bill. This can be very difficult, especially if you are one of the millions of Americans who rely on your tax refund for a financial boost once a year. 

How Does a BFS Offset Work?

So, how does the BFS or Treasury Offset Program work? When you owe money to a government agency that participates in the Treasury Offset Program, the agency contacts the Department of Treasury about the debt. Usually, this happens when you’re at least 90 days delinquent, and the agency must also contact you directly about the delinquency.

When the IRS processes your tax refund, it checks whether or not you have outstanding liabilities in the offset database before issuing the refund. If you have an unpaid bill, the Bureau of Fiscal Services checks the tax ID number and the name on the bill against the information on your return. If everything matches, the BFS seizes your refund and sends the funds to the agency you owe money to.

The same process happens with federal payments. Before issuing a federal payment, the government checks the offset database and then seizes the payment as allowed under federal laws.

What Can the BFS Offset?

The BFS can offset a range of unpaid bills including the following:

  • Federal taxes owed
  • Unpaid state taxes
  • Delinquent student loans
  • Back child or spousal support
  • Unemployment overpayments
  • Federal agency non-taxes — These are also called non-tax debt receivables, and they include things like small business loans from the government.

To give you an example, imagine that you haven’t paid child support in the amount of $3,000. The child support services agency in your state sends information about your delinquency to the BFS. You file your tax return, and it shows a $6,500 tax refund.

When the IRS processes your refund, the BFS notes that you have an unpaid child support liability. It sends you a notice of intent to offset that says $3,000 of your refund will be applied to your child support bill, but you will receive the remaining $3,500. 

If your child support or other liability is more than your refund, the BFS offsets your entire refund. Then, the next time you earn another refund, it also goes to the debt unless you have repaid it or made other arrangements by that time. 

What Is Notice of Intent to Offset Federal Payments?

This is a notice that the BFS plans to offset other government payments. The BFS doesn’t just offset federal tax refunds. If you have any of the unpaid liabilities listed above, the BFS can also offset the following federal payments:

  • Federal wages
  • Federal retirement pay
  • Contractor or vendor payments from the government
  • Federal employee travel advances and reimbursements
  • Some federal benefit payments such as Social Security benefits but not Supplemental Security Income.

In some cases, the BFS can offset the entire payment, just as they can offset your entire tax refund. But in other cases, they can only take a portion of the payment. For instance, they usually can’t take more than 15% of a Social Security check. 

What Is a State Refund Offset?

This is when the state seizes your refund to offset your unpaid liabilities. For example, if you have unpaid taxes in Michigan, the Michigan Department of Treasury can seize your refund. Most states seize your state refund if you have unpaid taxes. If you only have unpaid federal taxes, most states will seize your state tax refund and send it to the IRS. The reverse is also true — if you only have unpaid state taxes, the IRS will keep your federal tax refunds and send them to the state. 

What Should You Do If You Receive a Notice of Intent to Offset?

You need to act quickly. You have a limited amount of time to avoid a refund offset. But the exact actions you should take vary based on the situation. Here’s what you should do based on the situation. 

If you disagree with the information in the notice of intent to offset

Follow the instructions in the refund offset notice to learn how to dispute. In most cases, you need to contact the agency that says you owe money directly. If you call the IRS, they won’t be able to help you. If you already paid the bill or have an established payment plan, find out why the agency referred your debt to the Treasury Offset Program. 

If you haven’t made arrangements to pay the debt, ask if there is anything you can do to fix the situation. You may be able to avoid the offset if you make arrangements on the debt.

if you agree with the offset

BFS offsets usually happen for legitimate reasons. For instance, say that you received overpayments when you made an unemployment claim. Your state unemployment department has been sending you notices, but you just couldn’t afford to pay.

Then, after you file your tax return, you receive the offset notice. You agree with it because you know that you owe the bill. You don’t need to do anything at this time. However, if your tax refund didn’t cover the whole liability, you should reach out and make arrangements to pay the rest of the bill. Then, you don’t have to worry about your refund being offset the next year.

If the offset is your spouse’s fault

What if the offset is just due to your spouse or former spouse’s debt? For instance, what if the offset is for a tax bill that your spouse incurred before you were married? Or what if it’s for unpaid child support for a child your spouse had with someone else? Then, you may qualify to receive an injured spouse allocation.

In this situation, you can apply to get your portion of the joint tax refund back through the injured spouse relief program. Note that you probably won’t get exactly half of the refund. Instead, you’ll get the injured spouse allocation which is the portion of the refund allocated to you based on the income you reported or tax you prepaid. 

If the offset was for unpaid student loans

If the offset was for student loans, you should see a deadline for disputing the offset on the notice. Typically, you have 65 days to dispute. Traditionally, student loan processors sent student loans to the Treasury Offset Program once they were nine behinds behind. During the COVID pandemic and through tax year 2021 at least, the government stopped taking tax refunds for unpaid student loans.

FAQs About Federal Offsets

The Treasury Offset Program can be confusing. It’s frustrating not to receive your refund, but it’s even worse when you don’t understand what’s happening. To help you out, we’ve put together answers to these frequently asked questions about the notice of intent to offset tax refunds and other federal payments.

What does tax refund offset mean?

This is when the government takes your tax refund to cover unpaid taxes or liabilities to a government agency.

Will a tax offset delay my refund?

If the offset doesn’t take your entire tax refund, the remaining portion is likely to be delayed. The notice of intent to offset should explain when you’re going to receive the refund.

Will my tax refund be offset for student loans?

Traditionally, the Treasury Offset Program seizes tax refunds (and potentially other federal payments) when you have unpaid federal student loans. But this practice was suspended during the COVID pandemic. If you’re not sure what is going to happen, don’t wait for a notice of offset to come. Instead, contact your student loan servicer or a tax pro.

Can a tax refund offset be reversed?

The intent to offset notice should explain how you can dispute or reverse the offset. Usually, once the money is gone, you can’t get it back. However, you may be able to get a refund if you can prove economic hardship or if you qualify for an injured spouse allocation.

Save Your Tax Refund — Get Help Today

At the W Tax Group, we can help you deal with a notice of intent to offset and other tax issues. If you’re worried about losing your federal tax refund due to an intent to offset, contact us today. We can help you decipher the notice of intent. Then, we can help you make arrangements on your tax debts or liabilities to any other government agency.