If I owe federal taxes and am expecting a state refund, will fed withhold the state?

Question

I am currently up-to-date with payments on federal balance.

extension of question

Answer 1

If your Federal return for 2006 shows a balance due and you're expecting a refund from your state, the IRS will not attach your state refund.

However, if you have a pre-existing debt with the IRS and are making payments on that debt, it's almost a certainty that the IRS will attach your state refund and apply it against your Federal tax debt.

Answer 2

If you have an outstanding previous balance on your federal taxes, the state refund may be taken to satisfy the debt even if you are current on your payment arrangement.

Answer 3

No. The Federal government will not withhold your State tax refund in order to satisfy your Federal amount due. You should have your State refund sent as a direct deposit to your bank (so you can get it faster and safer). Then after your State refund gets deposited, write a check for your Federal tax due (before April 26th).

The Feds will also accept an EFW (electronic funds withdrawal) from your savings or checking account. I personally don't recommend this option to my clients because a canceled check is verifiable proof that they got paid.