By now you have probably received your refund from the IRS for 2010 unless you filed an extension. Unfortunately, some taxpayers had their refund withheld or it was used to offset previous tax liabilities.

Here are six important facts the IRS wants you to know about tax refund offsets:

1.     If you owe federal or state income taxes your refund will be offset to pay those taxes. If you had debt such as child support or student loan debt that was submitted for offset, the Department of Treasury’s Financial Management Service will take as much of your refund as is needed to pay off the debt, and send it to the agency authorized to collect the debt. Any portion of your refund remaining after an offset will be refunded to you.

2.     If your money is going to be used as an offset you will receive a notice from the IRS. The notice will reflect the original refund amount, your offset amount, the agency receiving the payment, and the address and telephone number of the agency.

3.     You should contact the agency shown on the notice if you believe you do not owe the debt or you are disputing the amount taken from your refund.

4.     If you filed a joint return and you’re not responsible for the debt, but you are entitled to a portion of the refund, you may request your portion of the refund. This article at Pine Tree Legal provides a great summary of the Injured Spouse Allocation which is the loophole that allows you to get your portion of the refund.

5.     You will need to write “Injured Spouse” on your Form 1040, 1040A, 1040EZ and the IRS will process your allocation request before an offset occurs.

6.     If you are filing the Injured Spouse from separately, it will need to contain all the information that was on the original filing.

The bottom line is that if you owe the government money, whether it is federally backed student loans or decisions the courts have made, such as child support, then the IRS or FMS departments will intercept your refund and apply the amounts towards your deficiencies.

-david rocci

Disclaimer: Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.