Last Updated on November 20, 2023 by asifa
When you haven’t paid your federal student loan for several months, your student loan will become a defaulted loan account. In this case, the Department of Education can request the US Department of Treasury to garnish your tax refund from a student loan, known as tax refund offset or treasury offset.
In this case, your tax refund will be added to your defaulted student loan, and you end up paying a higher amount of money in the form of tax refund offset. You can avoid paying this additional tax by applying tax offset reversal.
In this step-by-step guide by Financeshed, you will understand the tax offset reversal process, and you can avoid paying student loan tax garnishment.
You can handle the tax refund offset process in two ways either you can reverse your tax refund offset, or you can avoid a tax offset in the first place.
Table of Contents
Step 1: Clear your Concept with a Tax Refund Offset and Its Process
Always make sure you have a perfect knowledge of the tax refund process whenever you want to apply for a tax refund offset reversal. Officially, it will reflect in your system after 21 days of its processing. When you have owed the debts and haven’t paid for a long time interval, you need to pay the tax refund. You can check the following steps that can help you to avoid paying tax offset in the first place.
- Failed to sign the forms
- You might have entered incorrect or mismatched amounts in the sent form.
- Peak tax season is a busy season, so never send an application in this period.
- You have sent mismatched data in the form of different social security or tax identification numbers.
- It might be possible that you have missed out key documents to sendYou did not send to the IRS (Internal Revenue Service).
These are the rough estimates. However, there might be various reasons for tax offset. The most common reason is not paying the tax return and the IRS has the right to impose a tax refund on you. Sometimes you have received the late notice of refund offset because the other governing bodies like the Department of Education, etc., are taking time to analyze and send the report.
Step 2: You need to know the process on How to Reverse Tax Refund Offset
You might receive a letter of intent from the IRS to offset the outstanding tax debt from the internal revenue service. You can contact the IRS if the tax refund offset process takes more than 21 working days.
During the peak tax season, the IRS can send tax refunds to the taxpayers for tax debts. It is advisable to send an application for offset before the period of tax offset happens. In this way, you need to send a tax offset reversal application prior to April. However, if you have applied earlier to the refund offset, you can’t apply to its reverse application. Tough, you can file a complaint about a clerical error that rarely happens.
Step 3: Find out who requested the tax offset
The following points give you a detailed picture of who has requested the tax offset.
- Check who is the offsetting party whether it is the Federal Government or Dept. of Education, IRS has the right to send you an offset notice.
- Creditors can also contact the IRS for garnishing their tax refund.
- Courts can contact the IRS for garnishing the tax refund in child support cases. If sufficient time has passed after the judgment, the offsetting party can send the tax refund offset without informing the taxpayer.
You can contact 1-800-829-1040 for the tax offset related to the federal tax debt. However, you can contact 1-800-304-3107 for the tax offset related to non-federal tax debt. If you think that you should not owe the money, you can contact the specific agency.
Step 4: Apply for the Tax Refund Offset Reversal
You can perform two kind of activities:
- You can send an application for the tax refund offset process.
- You can appeal for the dispute of tax refund offset.
You can appeal to the IRS body only when you first receive the tax offset refund notice. Taxpayers must send a letter to the IRS body that can state the following details:
- Taxpayer name
- Tax refund amount
- Offsetting party names
- State the reason why the tax refund offset should not happen to your application.
- You are formally challenging the offset to the refund.
For spouses, there are two possible options
- One, you can use Injured Spouse Allocation (IRS form 8379) for settling your spouse’s debt.
- Two, you can use Innocent Spouse Relief (IRS form 8379) if your partner has sent misleading information in tax filing.
You can also apply to the refund offset reversal for the financial hardships. To carry out this application, you should do the following steps:
- You can settle down with “Collection Information Statement for Wage Earners & Self-Employed Individuals”( IRS form 433-A) for appealing the refund offset reversal application.
- You can file only when you are really facing hardships to meet your daily needs.
- You can also disclose your bankruptcy proceedings.
- You can send a proof copy of your document assets and expenses.
IRS is not liable to give you a time-frame to reply to your refund offset reversal application whether your case is affected by a financial crisis, individual problem or spousal. So, you need to check with the IRS regularly to stay updated on your application.
Step 5: Know the process how to avoid a tax refund offset
You can check the following steps to avoid a tax refund offset.
- Manage your budget and debt by an IRS Installment plan for debt.
- Why don’t you apply for a CNC status that can protect you with the incoming tax refund?
- It is advisable to ask for penalty abatement.
- You can request an offer in compromise
You can always bear in mind that you are appealing for the tax refund reversal process, not fighting the case against it. So, it will take a long time to settle it. You should have the proper evidence and proof so that the IRS can reverse the offset.
It’s better to allocate your finances properly not to face this situation to file the appeal for tax refund offset reversal process.