Can the IRS Take Your Refund to Offset Previous Year’s Liabilities?

One of the most frustrating things a taxpayer may encounter is when the IRS takes back their refund. This often happens when previous years’ liabilities have not been paid or when defaulting on a government-backed student loan. But what if the IRS owes you money? Can you offset that against your upcoming year's refund or can the IRS take this money?

Understanding Refunds and Liabilities

First, it’s important to understand the difference between refund and liability. A refund occurs when more has been withheld in taxes than you actually owe, meaning you’re getting a return on the extra amount paid. Conversely, if you owe more in taxes than you paid, you don’t receive a refund, but rather a tax bill or an underpayment.

How the IRS Can Take Your Money

The IRS has the right to take your refund for several reasons. One common reason is if you are behind on paying back taxes from previous years.

Student Loans and Back Taxes

Another reason could be if you have defaulted on a government-backed student loan. The IRS can also suspend your refund to satisfy other legal obligations such as child support. The IRS has the authority to garnish wages and attach refunds to recover debts owed to the government.

What About If the IRS Owes You Money?

So, what if the IRS owes you money? For example, if you overpaid your taxes and it’s been refunded, can you take this amount off your next year’s taxes? Unfortunately, the answer is no. The IRS can take any refund for the upcoming year to offset any previous year’s liabilities.

Application of Refund to Future Taxes

Instead of waiting for the upcoming year's refund, taxpayers can apply part or all of their current year's refund towards their next year’s taxes. To do this, taxpayers must complete line 36 on their Form 1040. By doing this, the IRS will deduct the amount from their refund and apply it to the next year's tax liability. It's crucial to keep a record of this so that when the next year comes around, you can claim this amount as having already been paid towards your taxes.

Addressing Inquiry About Refunds Not Received

If you find yourself in a situation where the IRS hasn’t sent you your refund, you have the right to make inquiries. It’s essential to call the IRS and request information about your refund status. Alternatively, you can visit the IRS website to check the status of your refund using the “Where Is My Refund” tool. Make sure you have all the necessary information available for the call, such as your Social Security number, refund amount, and any related account numbers.

Conclusion

Understanding the IRS's refund offset policy is crucial to avoid financial distress. The IRS has the authority to use future refunds to offset previous year’s liabilities, but this doesn't mean the IRS owes you money. On the other hand, if you ever receive an IRS refund and are not sure how to proceed, it might be beneficial to consult their official resources.