The IRS will keep your refund if you owe taxes from a previous year
If you are owed a refund this year but you owe taxes from an earlier year, the IRS will use your refund to pay down what you owe. This is called offset, and it happens automatically — you do not have to do anything to trigger it. The IRS applies your refund to federal taxes first, then to state taxes if your state participates in the offset program.
The amount offset depends on how much you owe. If your refund is $2,000 and you owe $3,000 in back taxes, the IRS takes the full $2,000 and you still owe $1,000. If you owe $1,500 and your refund is $2,000, the IRS takes $1,500 and you receive $500.
This applies whether the back taxes are from one year ago or ten years ago. The IRS can offset refunds for unpaid federal income taxes, unpaid self-employment taxes, and certain other federal debts. State tax agencies can also offset refunds if you owe state income tax.
Key Takeaways
- The IRS automatically offsets your federal refund against any federal taxes you owe from previous years, without requiring you to take action.
- Your state tax agency may also offset your state refund if you owe state income tax, depending on your state's rules.
- You will receive notice from the IRS or your state explaining the offset, usually within two to three weeks after your return is processed.
- If you believe the offset was made in error, you can contact the IRS or your state tax agency to dispute it, but you will need documentation of what you paid.
- Setting up a payment plan for back taxes does not prevent offset — the IRS will still take your refund even if you are making regular payments on an older debt.
When the IRS notifies you about an offset
You will receive a notice in the mail explaining that your refund was offset. The IRS typically sends this notice within two to three weeks after your return is processed. The notice will tell you how much was offset and which tax year the debt is from.
If you filed jointly with a spouse and only one of you owes back taxes, the IRS may offset the entire refund. Your spouse can file Form 8379, Injured Spouse Claim and Allocation, to recover their share of the refund. This form must be filed within three years of the original refund date.
What you can do if you disagree with the offset
If you believe you do not actually owe the tax debt, or if you believe you already paid it, you can contact the IRS to dispute the offset. You will need documentation showing what you paid — cancelled checks, bank statements, or payment confirmations from the IRS.
Start by calling the IRS at 1-800-829-1040. Have your tax return and any payment records ready. If the IRS made an error, they can reverse the offset and send you the refund. This process can take several weeks.
If you owe the tax but believe the amount is wrong, you can request a transcript of your account from the IRS. The transcript shows every payment you made and every adjustment the IRS has recorded. You can order a transcript free at IRS.gov or by calling 1-800-908-9946.
Offsets for debts other than taxes
The IRS can also offset your refund for debts beyond income tax. These include unpaid child support, unpaid student loans in default, and certain other federal debts. State agencies can offset for unpaid state income tax, unemployment insurance overpayments, and sometimes child support.
If your refund is offset for a non-tax debt, you will receive a notice from the agency that holds the debt, not from the IRS. The notice will explain which debt triggered the offset and how to contact that agency if you dispute it.
How to avoid losing your refund to offset
If you know you owe back taxes, you have a few options. The simplest is to contact the IRS before filing your return and set up a payment plan. Even though the IRS will still offset your refund, at least you will know it is coming and can plan accordingly.
You can also request an installment agreement with the IRS, which lets you pay back taxes over time in monthly payments. The IRS offers short-term agreements (120 days or less) and long-term agreements (more than 120 days). Setting up a payment plan does not stop offset, but it does give you a way to pay the remaining balance after your refund is applied.
Another option is to file your return but not claim a refund. If you are owed a small refund and you owe a larger amount in back taxes, you could adjust your withholding or estimated payments so that you break even or owe a small amount instead. This prevents the offset from happening, though you will still owe the back taxes.
State tax refunds and offset
Your state tax refund can also be offset for state income tax debt. Most states participate in a federal-state offset program, which means your state refund can be offset for federal tax debt as well. The rules vary by state.
Some states offset for other debts too — unpaid child support, student loans, or unemployment overpayments. Check your state tax agency's website to understand the offset rules in your state. If you owe both state and federal taxes, your federal refund is applied to federal debt first, then your state refund is applied to state debt.
What happens after offset
After your refund is offset, you still owe any remaining balance on the back taxes. The IRS will send you a bill for the remaining amount. You can pay it in full, set up a payment plan, or request a temporary delay if you are experiencing financial hardship.
If you do not pay the remaining balance, the IRS can place a tax lien on your property or garnish your wages. A lien is a legal claim against your assets. Wage garnishment means the IRS orders your employer to send a portion of your paycheck directly to the IRS.
The best approach is to contact the IRS as soon as you realize you owe back taxes. The longer you wait, the more interest and penalties accumulate. The IRS has payment options for almost every situation, and they are often willing to work with you if you reach out first.
Frequently Asked Questions
Can I stop the IRS from offsetting my refund?
No, the offset is automatic if you owe back taxes. You cannot prevent it, but you can dispute it if you believe the debt is incorrect or already paid. Contact the IRS with documentation of your payments.
Will the offset cover all of my back taxes?
Only if your refund is larger than the amount you owe. If you owe $5,000 and your refund is $2,000, the IRS takes the full $2,000 and you still owe $3,000. The remaining balance becomes a new bill.
Can my spouse's refund be taken if only I owe taxes?
Yes, if you filed jointly. Your spouse can file Form 8379 (Injured Spouse Claim) within three years of the refund date to recover their share. They will need to show their income and withholdings on the joint return.
How long does it take to get my refund after offset?
You will not receive a refund if it is offset. Instead, you will receive a notice explaining the offset. If you dispute the offset and the IRS agrees it was wrong, they will send you the refund, which typically takes two to four weeks.
What if I owe both federal and state taxes?
Your federal refund is offset for federal debt first. Your state refund is offset for state debt. If you owe both, you will lose both refunds. Contact both the IRS and your state tax agency about payment plans for the remaining balances.