Don't Mess With Taxes

You were really counting on your tax refund, but the amount the Internal Revenue Service send you was less than you expected. Welcome to the world of debt offsets. (Photo by Nicola Barts)

Department of Government Efficiency (DOGE) staff recently obtained read-only access to the U.S. Department of Health and Human Services’ child support database.

It’s a continuation of the Elon-Musk-created effort to ferret out fraud and waste in the federal government. In this latest controversial move, denounced by critics as an end-run around taxpayer privacy laws, DOGE ostensibly is looking for potentially wrong or incorrect child-related payments.

But many payers, or more often nonpayers, of child support could tell DOGE that Uncle Sam is doing a fine job already in staying on top of these situations.

In fact, tax refunds are reduced every filing season when the IRS discovers that individuals are behind on their child support payments.

Those child-related collections are just part of the existing U.S. Treasury system that in fiscal year 2024 recovered more than $3.8 billion in federal and state delinquent debts.

Old debts offset current refunds: Delinquent child support, which is a state-level payment, is just one amount that the federal government is authorized to collect from taxpayers refunds. Officially, these amounts are known as offsets.

The IRS is involved because it is the agency that processes tax returns. Technically, however, it’s the tax agency’s boss, the U.S. Treasury, that is able to grab part or all of taxpayer refunds to pay certain outstanding federal or state debts.

This is done by offsetting a payment, like a tax refund, that the debtor is set to receive.

The offset process is handled by the aptly-named Treasury Offset Program, or TOP, which is run by the Treasury’s Bureau of the Fiscal Service, BFS. And yes, the BFS also has been a DOGE target.

With child support, state agencies alert Health and Human Services’ Office of Child Support Enforcement (OCSE), which reports the certified overdue amounts to TOP. When tax refunds are processed, the OCSE data is checked for those who owe past-due support and intercepts all or part of the tax refund. Treasury then sends the intercepted or offset funds through OCSE to the state child support agency to pay the past-due support.

It works basically the same with other creditor agencies at all levels, such as the Department of Education when it comes to unpaid student loans or state tax departments when filers don’t pay at that level.

The BFS is authorized via TOP to use part or all — that’s worth repeating: part or all — of a tax refund to pay a variety of other debts. Debts that can be collected from federal tax refunds include:

• Federal tax debts, such as previous federal income tax you didn’t pay.
• Federal agency debts, for example, a delinquent student loan.
• State income tax obligations.
• Past-due child and spousal support.
• Certain unemployment compensation debts owed to a state.

TOP collection process: Regardless of who is asking for offset help in collecting overdue amounts, the requesting federal or state agencies must follow the TOP guidelines.

The owed agency must send a letter to the debtor at the name and address on file for the debt at least 60 days before sending the debt to TOP. The letter must tell the debtor about the debt (type and amount), that the agency intends to refer the debt for offset, and what rights the debtor has to resolve the debt situation.

The letter must give the debtor opportunities to pay the debt, enter into a payment agreement, or dispute that they owe the money to the agency.

If a satisfactory resolution of the debt is not reached, then the creditors’ proceed to TOP. For nontax debts due federal agencies, the law requires that the owed agencies submit the amount to TOP if it is more than 120 days overdue so that the collection can be made through the offset process.

All creditors must certify that the debt submitted to Treasury is valid and legally enforceable. They also must provide information about the payment, including the Tax Identification Number (TIN) and name of the recipient.

After determining the owing individual is in the database, Treasury offsets federal payments to satisfy the debt and sends the amount to the agency to which the debt is owed. Any remaining portion of the payment — after paying the debt — is disbursed to the owing individual.

And while it might be a surprise to some, especially in the case of a smaller than expected federal tax refund, the taxpayer should have been notified. The process requires that when TOP offsets a federal payment, it will send the debtor/payee a letter regarding the action.

Finally, a debtor stays in the TOP database until the agency that sent the debt to the TOP database tells TOP to stop collecting the debt. The agency might tell TOP to stop collecting if the debt has been paid in full, if the debt is subject to a bankruptcy stay, or if other reasons justify pausing or stopping collection.

Beyond taking from tax refunds: However, it’s not just tax refunds from which TOP can collect. Depending on the type of debt you owe, Uncle Sam can take money from the following federal payments —

• Wages, including military pay;
• Retirement, including military retirement pay;
• Contractor or vendor payments;
• Travel advances and reimbursements;
• Some federal benefit payments, including Black Lung (Part B) benefits, Railroad Retirement benefits (other than Tier 2), and Social Security benefits (other than Supplemental Security Income); and
• Other federal payments, unless the law or the Secretary of the Treasury says we can’t use them to pay the overdue debt.

BFS has a frequently asked TOP questions page, as well as one for individuals whose debt ended up at TOP through the cross-servicing program, the Treasury mechanism to collect delinquent nontax debt owed to federal agencies.

You also can check out the federal payments that are exempt from nontax debt offset collection.

And as for the debt that was sent to TOP and taken off the top of your tax refund, note that Treasury is just providing the system to recover the owed funds.

If you have a problem with the amount taken, you need to go directly to the debtor, the agency that sent the offset request to TOP, for answers about the amount owed.

You also might find these items of interest:

• What to do if your tax refund is wrong
• Determining child-related tax breaks when you're divorced
• Oregon child support officials to get collection help from new reporting law

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