Quick summary

If the IRS withholds part or all of your tax refund, that action is usually an offset processed through the Treasury Offset Program (TOP) or a state agency. Common reasons include unpaid federal taxes, defaulted federal student loans, and unpaid child support. You will get a notice that explains the offset and names the agency that requested it. From there you can verify the debt, file an injured-spouse claim if applicable, dispute errors, or negotiate with the creditor to reduce or schedule payments.

(Author’s note: In more than 15 years helping clients, prompt verification and early contact with the referring agency are the most effective ways to recover money that was withheld.)

Sources: IRS Tax Topic 203: Refund Offsets (https://www.irs.gov/taxtopics/tc203), Treasury’s Treasury Offset Program (https://fiscal.treasury.gov/top/), Consumer Financial Protection Bureau general guidance (https://www.consumerfinance.gov/).

Why the IRS (or Treasury) can withhold your refund

The government can intercept federal payments — including tax refunds — to collect past-due debts. The most common categories are:

  • Federal tax liabilities (unpaid income taxes from prior years).
  • Defaulted federal student loans sent to the U.S. Department of Education or a loan servicer.
  • Past-due child support collected by state child support agencies.
  • State income tax debts and certain other state obligations that are reported to the federal Treasury for offset.

Offsets are usually processed through the Treasury Offset Program (TOP), which matches federal payments to records of delinquent debt and applies the refund to the outstanding balance (U.S. Department of the Treasury, Bureau of the Fiscal Service).

How you’ll be notified and what the notice contains

When your refund is reduced or withheld, you’ll receive a written notice explaining:

  • The amount taken from your refund.
  • The agency that requested the offset (for example, a state child support office, the Department of Education, or the IRS for prior tax debt).
  • Contact information for the agency that referred the debt and how to dispute it.

Keep that notice. It’s the primary document you’ll use to verify the offset and lodge any disputes.

Immediate steps to take (a 6-point checklist)

  1. Read the notice carefully and note the referring agency and case number.
  2. Confirm the identity of the agency before sharing personal information — scammers sometimes send fake notices.
  3. Contact the referring agency (not just the IRS) to get an itemized accounting of the debt and explain your situation.
  4. If you filed a joint return and the debt belongs to only one spouse, file Form 8379 (Injured Spouse Allocation) with the IRS to claim the other spouse’s share. See: IRS Form 8379 (https://www.irs.gov/forms-pubs/about-form-8379).
  5. If the offset is for federal student loans, contact the loan servicer or the Department of Education about rehabilitation, consolidation, or offers to resolve a default.
  6. If you believe the offset is an error, start a dispute with the agency that referred the debt and follow up in writing.

Options by debt type

  • Federal tax debt: You can set up an installment agreement, request an Offer in Compromise (if eligible), or ask the IRS to reconsider collection due to hardship. An installment agreement may not stop an existing offset for already filed refunds, but it can reduce future collection actions if kept current.

  • Defaulted federal student loans: Typically the Department of Education or a federal loan servicer refers these to TOP. Options include loan rehabilitation, consolidation, or a settlement if a lender agrees. Rehabilitating a loan can restore eligibility for repayment plans and may stop future offsets once the account is brought out of default.

  • Child support: Contact your state child support enforcement office to negotiate a repayment plan or resolve errors. States administer child-support offsets and have their own appeal processes.

  • State tax or other state debts: Contact your state revenue department; many states allow installment arrangements or partial-pay options.

Disputes, appeals, and recovering funds

If you believe the offset is incorrect, the dispute typically goes to the agency that referred the debt (not directly to the IRS). The general path is:

  1. Gather documentation that shows why the debt is wrong (payment records, account statements, court orders, discharge paperwork).
  2. Contact the referring agency immediately and ask for a formal review or correction.
  3. If the referring agency confirms the debt is an error, they will notify the Treasury to return funds. The return can take several weeks.
  4. If you can’t resolve the issue with the referring agency, ask for written denial and then consider contacting a tax professional or an attorney to evaluate further options.

If the IRS itself applied the offset in error (for example, because of a filing error or misapplied payment), contact the IRS using the phone number on the offset notice and follow their instructions for correction.

Injured spouse and innocent spouse considerations

  • Injured spouse (Form 8379): If you filed jointly and your refund was reduced for your spouse’s debts, you can file Form 8379 to get your share of the refund. You can file it with your return or after receiving an offset notice. (IRS Form 8379 guidance: https://www.irs.gov/forms-pubs/about-form-8379)

  • Innocent spouse relief: This applies to tax liability on a joint return and is a separate remedy. It won’t directly recover a refund withheld for non-tax debts like child support, but it may be relevant if the withheld amount relates to joint tax liability.

Practical negotiation tips I use with clients

  • Get the referring agency’s written statement of the debt before making promises.
  • Offer a realistic payment plan in writing and ask for confirmation that future offsets will stop once the agreement is honored.
  • Request a temporary hold or partial-release when you can show immediate hardship (rent, utilities, food). Some agencies consider hardship adjustments.
  • Keep a log of every phone call: date, time, person’s name, and summary of what was said. Follow up with an email to create a paper trail.

Timeline and expectations

  • Administrative processing of an offset and issuing a notice usually occurs within weeks of refund processing. If a returned offset is approved after a dispute, reimbursement can take several additional weeks or months depending on the referring agency and Treasury processing times.
  • There’s no automatic immediate reversal. Persistence and documentation are essential.

Avoiding common pitfalls and scams

  • Do not pay anyone who calls claiming they can “get your refund back” for an upfront fee without verifying their credentials.
  • The IRS will not demand payment via gift cards or cryptocurrency. If someone asks for those, it’s a scam (FTC and IRS advisories).
  • Use agency contact information from official websites (e.g., IRS.gov, your state revenue site, or your state child support enforcement office).

Useful links on FinHelp.io and government resources

Government resources:

When to get professional help

If the offset involves a large balance, a legal dispute (for example, identity theft or an incorrect judgment), or the referring agency refuses to correct an obvious error, consult a tax attorney or an IRS-authorized representative (CPA, EA). In my practice, cases resolved with a written repayment agreement or formal rehabilitation for student loans move faster and leave clients in a better financial position.

Disclaimer

This article is educational and does not constitute legal or tax advice. Your situation may require tailored advice from a qualified tax professional, attorney, or the agency that reported the debt.

If you suspect a scam or identity theft, contact the IRS Identity Protection Specialized Unit and report the situation to the Federal Trade Commission (https://www.identitytheft.gov/).

If you want, I can help draft a short outreach email template to a referring agency or a checklist of documents to collect for a dispute.