Here's why your tax refund might be smaller than expected

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Tax Planning

Here's why your tax refund might be smaller than expected

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Don't spend your refund before it's actually in your account.

Even if your return shows Uncle Sam owes you money, you might not actually get it. Under certain circumstances, the government can seize part or all of your refund to put toward certain unpaid debts. During 2016, the Treasury Offset Program made more than 8.5 million such "offsets," to the tune of $6.65 billion — more than double what it collected a decade earlier.

(Those figures from the Treasury Department include money pulled from federal and state tax refunds, as well as sources including Social Security checks.)

So far this year, the IRS has paid out refunds to more than 80 million taxpayers, averaging $2,851 apiece, according to filing data. Among direct-deposit recipients, the average refund is $3,009.

These six delinquent debts could impact the size of your tax refund:

  • 1) Federal taxes

    Don't expect money back if you owe Uncle Sam from a prior year. In 2016, the Treasury Offset Program seized more than $510.5 million in tax refunds and other government payments to satisfy past-due federal tax debts.


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  • 2) State taxes

    Your return also could be dinged for past-due state taxes. The offset program seized nearly $564 million in tax refunds and other government payments during 2016 to satisfy delinquent state tax debts. New York received the most, just shy of $81 million, while North Dakota received the least — $212,382.


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  • 3) Child and parent support

    During 2016, the program seized more than $1.8 billion in tax refunds and other government payments to satisfy past-due child and parent support debts.


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  • 4) Student loans

    So-called federal nontax debts are the biggest line item, at more than $3.3 billion collected by the Treasury Offset Program in 2016. The bulk of that money — $2.5 billion-plus — went to the Department of Education to satisfy delinquent student loan debts. Payments also went to cover unpaid debts with the U.S. Postal Service ($7,440), Securities and Exchange Commission ($100,903) and U.S. Customs & Border Protection ($751,395), among others.


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  • 5) Unemployment compensation

    The IRS notes that your refund can be offset to pay "certain unemployment compensation debts owed to a state." In 2016, the offset program seized more than $395 million in tax refunds and other government payments to satisfy such past-due debts.


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  • 6) Other state debts

    During 2016, the program grabbed $27.5 million in tax refunds and other government payments to satisfy unspecified "other" delinquent state debts. The biggest beneficiaries? New Jersey, which received $6.3 million, followed by New York at $5.4 million and Kentucky, with $4.7 million.


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  • Navigating an offset

    If your tax refund is subject to an offset, the IRS says you'll receive a mailed notification from Bureau of the Fiscal Service — the Treasury division that administers the offset program. That will include key details including your original refund amount, how much was seized and which government agency received that money, as well as contact information for that agency.

    Strategies to dispute an offset vary. The IRS Taxpayer Advocate Service lists contacts by type of debt, as well as whom to call if your refund is smaller than expected but you don't receive an offset notice. Married taxpayers might also file a Form 8857 for "Innocent Spouse Relief" to capture some of the offset, if only one spouse is responsible for the delinquent debt.


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