Who Can Garnish an Income Tax Return?

Many people receive tax refunds when they file federal income tax returns. These refunds are issued in two ways: paper check and direct deposit to your bank checking or savings account. However, if you have unpaid debts, it is possible that your income tax refund could be garnished. This is a process where all or part of your refund is diverted to a third party, typically a creditor, to satisfy delinquent debts that you have previously failed to pay.

Department of Education

The U.S. Dept. of Education is empowered to garnish income tax refunds as part of the Treasury Offset Program. Student loans are considered to be in default when you do not make required payments for 270 to 360 days, according to the Dept. of Federal Student Aid. Some or all of your income tax refund may be garnished to pay off the past due student loan. You can avoid this by making payment arrangements or satisfying the debt by replying to the collection notices sent to you before garnishment occurs.

Internal Revenue Service

The Internal Revenue Service has the power to garnish your income tax refund if you've failed to pay taxes in previous years. The amount you owe to the IRS, up to the full amount of your income tax refund, is garnished and deducted from any payments you would have received.

Dept. of Treasury

The Dept. of Treasury's Financial Management Service typically issues tax refunds and may withhold payment for several reasons. Failure to pay child support is one major reason that federal tax refunds are garnished. Other reasons for garnishment include delinquent state income tax obligations and other federal agency non-tax debts.

Creditors

Creditors can garnish your income tax refund through a court order. If a creditor has attempted to settle a debt and you fail to respond or refuse to pay, a court judgment may be obtained. The judgment will freeze your bank account and prevent you from withdrawing money. Funds deposited in your account, such as an income tax refund, are frozen and diverted to the creditors who obtained the judgment.

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