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What Is a Tax Refund Offset? How Does It Work?

Have you ever asked yourself the question: what is a tax refund offset? Do you want to know how it works? Read on to learn more.

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What Is a Tax Refund Offset? How Does It Work?

170 million people filed tax returns in the year 2020. 126 million of those taxpayers were happy because they also got an IRS refund. This means 74% of all the people in the US who file taxes typically garner a tax refund.

Are you one of the millions excitedly awaiting your tax refund?

Before you get too excited, do you owe the federal government any money? Do you have an SBA loan in default?

If you're behind, get prepared because your tax refund can be withheld. This is called a tax refund offset.

How does a tax refund offset work?  How do you get your refund if you don't want the IRS keeping it?

Unfortunately, the SBA usually finds a way to get their money before letting you have it. Read on to learn more about tax refund offsets, how they work, and why the IRS can offset your refund for a defaulted SBA loan.

What Is a Tax Refund Offset?

If you've been excitedly awaiting a tax refund and found the refund to be much smaller than anticipated, or even worse, you didn't get one.

You might be experiencing a tax refund offset.

When you owe monies or are in arrears, the IRS can prevent your tax refund from being paid out to you by sending the funds to the SBA.

The US Treasury Department would notify you they are about to do an offset to cover a delinquent debt. If you're notified of this and had questions about a delinquent debt, you can call 800-304-3107.

Your Refund Check Was Smaller Than Expected

Now and then, there's a scenario where the reduced IRS refund beats the explanation letter. You can contact the IRS for an explanation.

In most cases, though, you'll receive a letter before the offset occurs. The letter will include:

  • Your refund you were eligible for
  • Amount offset (reduced)
  • The entity to whom the offset money will be sent
  • Address and telephone number of that entity

If you get this letter, you would be best served to direct your questions to the entity listed as receiving your money.

What Can Cause an IRS Tax Refund Offset?

You might be wondering what you're behind on, defaulted on, or in arrears before the IRS will make an offset payment?

The good news is that the IRS can't do an offset payment to cover any late bills for private lenders or utilities. They won't take your tax refund if you're behind on your cable bill or credit card bill.

There are, however, several reasons you might get a tax refund offset. If you have any arrears with the federal government, you should assume it could trigger a tax refund offset.

However, for purposes of this article, the reason you are most concerned about a tax refund offset is due to a defaulted SBA loan.

The IRS automatically take any refunds to cover back taxes before even considering a tax offset for an SBA loan.

It's also worth noting that if your offset is related to a federal tax issue, you'll be notified by the IRS. If your offset is for any other reason, then you'll be notified by the Treasury Department’s Bureau of the Fiscal Service (BFS).

Spouse's and Offset Payments

There might be a situation where one spouse owes something, and the IRS triggers a tax refund offset. What's tricky is if the married couple files their taxes jointly.

This could mean that the expected tax refund that one spouse thought was coming is instead an offset for the other's debt. Aside from making for quite an awkward dinner conversation, there is something that can be done to get a refund for the non-owing spouse.

You can contact the IRS 800 number, visit your local IRS office, or perhaps the easiest option is to visit the IRS website. You can download and complete IRS Form 8379.

It may not be a fast process, and you'll likely need to provide some documentation, but you can request one spouse's part of the refund money.

Challenging an Offset

If you believe the offset is in error, you can challenge it. In some cases, the offset will be processed while the challenge progresses.

In most cases, when you're notified of the offset, you'll also be provided with directions on how to challenge if you disagree.

Remember, don't start the challenge process just because you don't like the tax offset. You'll need to provide documentation of why the tax offset is being done in error.

Perhaps it's for a debt that's been paid off or you have a payment plan in place for the SBA loan.

A good place to start is by calling your local IRS office to get started. If your offset isn't tax related, contact the Bureau of the Fiscal Service (BFS) as they will have all other offset information for your case.

Get the SBA Loan Help You Need

If you haven't already sought advice for your debts, it might be time to do that before you proceed with challenging an offset. Seek the advice of our SBA attorneys to get tax refund offset advice.

Once you find yourself in conflict with the IRS or the Treasury Department, it's time to seek some professional guidance on the best way to proceed. They may also be able to help you with the best way to challenge an offset and use the right documentation to win your appeal.

Understand Why You Might Get a Tax Refund Offset

Once you have a tax refund offset explained, you can understand how frustrating and upsetting it will be to receive a letter notifying you of a tax refund offset.

If you have questions about your tax offset, we can help. Contact the Protect Law Group so we can get to work helping you.

Why Hire Us to Help You with Your Treasury or SBA Debt Problems?

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Millions of Dollars in SBA Debts Resolved via Offer in Compromise and Negotiated Repayment Agreements without our Clients filing for Bankruptcy or Facing Home Foreclosure

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Client personally guaranteed SBA 7(a) loan balance of $58,000.  Client received Notice of Intent to initiate Administrative Wage Garnishment (AWG) Proceedings.  We represented client at the Hearing and successfully defeated the AWG Order based on several legal and equitable grounds.



Client personally guaranteed SBA 7(a) loan balance of over $150,000.  Business failed and eventually shut down.  SBA then pursued client for the balance.  We intervened and was able to present an SBA OIC that was accepted for $30,000.



Client personally guaranteed an SBA 7(a) loan for $150,000. His business revenue decreased significantly causing default and an accelerated balance of $143,000. Client received the SBA's Official 60-Day Notice with the debt scheduled for referral to Treasury’s Bureau of Fiscal Service for aggressive collection in less than 26 days. We were hired to represent him, respond to the SBA's Official 60-Day Notice and prevent enforced collection by Treasury and the Department of Justice. We successfully negotiated a structured workout with an extended maturity date that included a reduction of the 14% interest rate and removal of substantial collection fees (30% of the loan balance), effectively saving the client over $242,000.

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