Garnishment of Tax Refund

By | March 9, 2014

If you owe substantial amounts of certain debts, your wages may be under garnishment. In addition to wages being under garnishment, creditors may be able to garnish your tax refund in certain circumstances. What will happen if your wages are being garnished and you are going to receive a tax refund?


Creditors Garnishing Federal Tax Refund

It will be hard for most creditors to garnish a tax refund, Generally, there are only three entities that can directly garnish your federal tax return that you might be receiving. Private creditors cannot garnish your federal tax refund. Your refund can be reduced by an “offset.” Your federal tax refund will be offset if you owe federal or state income taxes from past years. Your federal tax refund may be offset to pay for child support or a past due federal student loan. These entities include the IRS, the Department of Education and your State Revenue Service.


Who can Garnish Tax Refund?

  • The government can retain your refund if it finds that you owe any back taxes to the federal government.
  • The Department of Education can garnish your income tax return for past due amounts on federally backed student loans.
  • You state department of revenue can garnish your income tax refund for state taxes that are due or for student loans that are guaranteed by the state.

You will receive a notice from one of these entities if they plan on garnishing the federal tax refund that you will receive.


Can a credit card company garnish a tax refund?

A credit card can;t directly attach their debt against you to your income tax refund from federal taxes. However, bill collectors  and credit card companies can indirectly gain access to your tax refund by getting a judgment against you in a court. This would happen because there is a judgement against your bank accounts and the creditor could seize them. Thus, if your tax refund in deposited into one of these seized bank accounts, the creditor will have legal right to it.


Government Garnishing Tax Refund

Once the government garnishes the tax refund, it is generally gone and there is little the taxpayer could do to recover the money that is garnished. There is limited relief for an injured spouse in a marriage, but the process is often hard to prove and very time consuming.


Garnishment of Tax Refund

This might not be worth pursing if the amount garnished by the government is small. If the outstanding debt is a student loan belonging to only one person in the marriage, the other spouse can apply to have their part of the refund given directly to them and not applied to the debt. This process is somewhat similar to begin. If it is past due taxes that are owed, both spouses are considered liable for the debt and the entire tax return will be garnished by the government.