What is a federal offset?

Question

i'm filling my taxes and the instructions say my amount overpaid maybe used to pay previous debts? What are these? What agencies' debts apply e.g can a debt i owe for a phone bill or library overdue bill be taken out of this amount?

Answer 1

Your tax refund can be offset to pay the following debts:

1. Unpaid State and Federal taxes.

2. Non-tax debts to certain State and Federal agencies.

3. Unpaid child support that is in arrears.

4. Defaulted government insured student loans.

These are the only debts that can be satisfied using an offset from your State or Federal tax refunds. Private debts such as phone bills, credit cards, mortgages, auto finance contracts are NOT subject to offset.

If a debt is being used for offset, you cannot pick and choose how it will be paid. The fact that the offset program is being used means that you've already gone too long without paying and it's no longer your choice.

Answer 2

The FMS (Financial Management Service) is the collection agency for the federal government. Tax refunds can be used to pay debts owed to the United States, and to pay past due state income taxes and child support owed to a state.

Examples of debts that FMS can take tax refunds for are:

Government loans: student loans, HUD loans, SBA loans
Bounced checks to federal agencies
Overpayments, duplicate payments to a taxpayer
Fines or penalites assessed by a federal agency

Only government debt is collected by FMS. The agency that holds the debt would have to have the taxpayer's SSN in order to collect.

Answer 3

The IRS is the collection agency for the federal government.

If you have ever had a federal debt (child support, student loans, old taxes due, etc.), then you could use your tax return to pay them. Personally, I think it's a good deal, but I wouldn't trust the government to actually apply the payment correctly. I would just ask for the refund and pay the debt directly and get a receipt.