In the wake of the coronavirus pandemic, about 11.23 million Americans failed to pay their taxes on time. Collectively, that means a whopping $125 billion didn’t get paid to the federal government and therefore can’t be used to fund important programs or help citizens in need.
If you owe a significant chunk of money in back taxes, you may have received a Notice of Intent to Offset. You know consequences are imminent, but what you may not know is exactly how the Treasury Offset Program works or what you should do after you get a Notice of Intent to Offset. Learn everything you need to know to protect your rights and financial future below.
What Is a Notice of Intent to Offset?
In a nutshell, a Notice of Intent to Offset is an informational letter that tells you what’s about to happen. It means that you owe the IRS back taxes or you owe a significant chunk of money to a different government agency.
It also means that the IRS is planning on seizing your tax refund.
Read the letter carefully to determine whether your entire tax refund or federal payments are at risk. Often, the government will only seize a portion of your refund or payments, but the amount they want to take will depend on several factors. You also need to go through the letter and verify that the following details are 100% accurate:
- Your name
- The amount of your federal payment or tax bill
- The agency that’s initiating the offset
- The agency’s contact information
Depending on the situation, the agency may take all your tax refund. In other cases, you’ll still receive a portion. Be sure to check the information in the letter and make sure that it is correct.
How Does the Treasury Offset Program Work?
The Notice of Intent to Offset is most often sent through the Bureau of the Fiscal Service. This government agency operates the Treasury Offset Program, and it also processes all payments from any federal agency. In other words, your tax refund must go through the Bureau of the Fiscal Service before it gets to you.
This government agency also gets information about delinquent debts you owe to creditor agencies. Your debts get attached to your tax identification number and name. If you owe the Department of Education for unpaid federal student loans, for example, the BFS knows about it!
Before issuing your tax refund or federal payment, the BFS will run your tax number to check for debts. If the debt is eligible for the offset program, then you’ll get sent that dreaded Notice of Intent to Offset.
Types of Treasury Offset Program Debts
Are you wondering what types of debts get sent over to the BFS and which ones are eligible for the Treasury Offset Program? Here are the types of liabilities that could potentially end up resulting in an offset:
- Unpaid child support
- Delinquent spousal support
- Past due student loans
- Delinquent state income taxes
- Back federal taxes
- Certain unemployment liabilities
The above types of debts get sent to the Treasury Offset Program once they’ve been delinquent for over 90 days.
Not every federal payment is eligible to get offset, though. Here are the types of federal payments though could get reduced through the Treasury Offset Program:
- Military pay
- State income tax refund
- Federal retirement payments
- Federal travel reimbursements
- Contractor or vendor payments from the government
- Some federal benefits (other than Supplemental Security Income)
The amount of income that can get offset is limited by law. If your Notice of Intent to Offset letter mentions your Social Security benefits, then know that they can only withhold 15%. If the letter mentions your tax refund, then understand that the full amount could be offset.
The Consequences of an IRS Tax Offset
An IRS tax offset or other type of offset means that consequences are forthcoming. If you do not take action, then the money mentioned in the notice will likely get seized. You will not receive the funds you expected, but the overall amount of debt you owe will decrease. If the offset doesn’t cover the full amount of your debt liability, then you’re not out of the woods yet. Future federal payments or tax refunds could be offset, too.
What to Do If You Get a Notice of Intent to Offset
It’s essential to take action if you receive a Notice of Intent to Offset. First, confirm that everything in the notice is accurate. As we explained above, you need to verify that all your information is correct, and you should ensure the debt amount is current and accurate. This step is very important, because the Federal Offset Program may not realize that you’ve already paid off a debt liability.
Next, you need to decide whether to fight the offset or allow the money to be seized. If you don’t want to challenge the offset, then you don’t have to do anything. Your money will be taken and it will go towards your unpaid debt.
If you know that the debt amount is correct but want to prevent the offset, then you have several options depending on whether you owe money to the IRS or the Department of Education.
First, you need to identify who you owe your debt to. If you owe money to the IRS, then you’ll need to contact the IRS about your debt. We’ll go over that in more detail below.
If you owe student loan debt to the Department of Education, then you have a few options for preventing the offset. A student loan consolidation tax offset means that you can bundle all your student loans into a single loan. After consolidating your debt, it will no longer be considered in default, which will mean that you’re no longer eligible for an offset. Another option is to rehabilitate the loan by reaching an agreement with your lender. You could always pay the defaulted loan in full, too, but that’s usually not an option for most borrowers.
If you want to challenge the offset, then you do have options. We’ll get into more detail about them below.
Tax Refund Offset 2021: What Are Your Options?
After receiving a tax refund offset notice, your time is limited. The IRS will only give you about 60 days to pay off the full balance of back taxes. Clearly, that’s not possible for most individuals who are receiving an offset in the first place.
That’s where tax debt negotiation strategies come in. If you and the IRS come to an agreement about your delinquent taxes and you start making payments, then there is a chance that the government will decide not to offset your federal payment.
Take note, though: there is no guarantee that the IRS will choose not to offset your federal payments even if you attempt to reconcile your debt. The only way you can be sure that no offset will occur is if you pay off the full balance of what you owe before the 60-day deadline. In most circumstances, the IRS will still offset your tax refunds even if you’re making monthly payments on your back taxes by using an IRS installment agreement.
If you owe state taxes, then look into your options for state tax debt relief, too. Sometimes, you can work with the IRS to reduce the overall amount of tax debt you owe. You can also act and start making payments to show the agency that you are willing and able to pay off that debt over time.
Steps to Take If You Want to Dispute IRS Offset Claims
Do you want to challenge or dispute the notice? If so, then you need to contact the agency listed on the notice ASAP. You only have a certain amount of time after receiving the notice to act, so get started quickly. If the agency agrees that you’ve paid your debt, then tell them to stop the offset by informing the proper agency immediately. Otherwise, that agency may be tasked with refunding you any amount that gets unfairly offset.
How to Deal With a Notice of Intent to Offset
Have you recently been served with a Notice of Intent to Offset? Are you wondering how to deal with the notice without suffering the consequences of losing out on federal income you expected to receive? Whether you decide to dispute IRS offset claims or participate in a tax refund offset alternative like making payments on your debt, there are ways to successfully deal with a Notice of Intent to Offset.
Here at Tax Group Center, our experts can help you determine your best financial option. Our experts include professionals like tax attorneys, CPAs, enrolled agents, and certified tax consultants. Our top priority is providing realistic and achievable solutions to individuals and businesses struggling with the IRS.
Get accredited and sound professional advice on your Notice of Intent to Offset, tax relief, or other IRS issues by contacting us today.