Each year you are required to file a federal tax return if you have earned income. Taxes owed are based on a variety of factors that include your income, deductions and exemptions. Some tax filers may ultimately still owe the Internal Revenue Service (IRS) more money while others will be due a refund. In some cases, tax refunds can be garnished to repay your unpaid debts.
Creditors
Creditors are people or companies to whom you owe money. When you have defaulted on repaying your debt, a creditor can go to court and acquire a judgment allowing the creditor to garnish your wages and bank accounts to recover the money. A creditor cannot garnish you wages or your bank account or place a lien on any property without a judgment. Most creditors, even with a judgment, cannot garnish your federal tax refund. There are a very few creditors that can offset a tax refund.
Owed Taxes
The Internal Revenue Service, Treasury Department and your local state can garnish your tax refund to repay any tax debts you failed to pay. The garnishment will remain in place until you have repaid the debt in full.
Student Loans
Student loans are disbursed by the federal government, and the U.S. Department of Education can request the IRS to offset any tax refund owed to you to repay your student loans. Each year, your refund will be garnished until the student loan is repaid. You can contact your student loan provider and enter into a repayment plan to get your student loan out of default. By getting your student loan out of default status, you will stop any future garnishments of your tax refund.
Child Support
Child support enforcement varies by state, and owing back child support can result in numerous penalties, such as losing driver's license, jail time, denial of passport, wage garnishment, bank account garnishment and tax return garnishment. Not only can federal tax refunds be garnished but state tax refunds can be garnished as well.
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