How Does My Wages Being Garnished Affect a Refund?

If you do not pay back a debt, your creditor may sue you. If your creditor wins the lawsuit, he can ask the court to garnishee your wages -- take a certain amount each pay period from your paycheck until your debt is repaid. Most creditors must leave you at least 25 percent of your paycheck for you to live on. If your wages are being garnished, your creditor may seize your tax refund.

Private Creditors

The Internal Revenue Service does not automatically apply your refund to debts other than for federal taxes. Thus, if a creditor garnishes your wages, your tax refund is not likely to be affected. However, if the creditor makes arrangements with the IRS to apply any tax refunds to your debt, the IRS may turn your refund check over to the creditor. Thus, you may wish to make payment arrangements with your creditor prior to tax time to avoid this possibility.

Student Loans

If you default on a student loan, the federal government has the right to seize your tax refunds, which is called tax offset, as well as to garnishee your wages to satisfy your debt. If you are facing a severe financial crisis, you may request that the federal government return part or all of your refund to you. You must give the Department of Education proof of income and of extreme hardship, such as a foreclosure notice, to apply for relief from tax offset.

IRS Garnishments

If the IRS garnishes your wages because you owe back taxes, it will also seize your federal and state tax refunds to help repay your debt. You cannot usually ask the IRS to return your refund, even if you have severe financial difficulties. However, you can stop the IRS from garnishing your wages by settling your tax debt with them. Contact a tax professional if the IRS is garnishing your wages and you can't afford to pay back your debt.

Considerations

If your wages are being garnished, you risk losing your tax refund to your creditor, regardless of the creditor. Thus, you should always attempt to make alternative payment arrangements with any creditor who is garnishing your wages. If you cannot pay your debt because of financial problems, you may be able to pay part of the debt or make installment payments to resolve the debt. An attorney can help you negotiate a settlement with creditors.