Can a Judgment Holder Garnish a Federal Refund?

Paying your debts on time is important for maintaining a good credit standing. Past-due debts affect your credit rating when creditors report late payments and file judgments against you. A judgment creditor may garnish your wages, your bank account and, in certain cases, take your federal and state tax refunds to offset your debt balance.

Past-Due Credit

Generally, credit companies, such as banks and financial institutions, cannot take your federal and state income tax refunds to pay off your debts. Creditors may intercept refunds if they are a part of a court-approved debt settlement. A creditor can, however, obtain a court judgment to garnish your bank account. If you tax refund is deposited directly into your account, the judgment creditor can take the funds. If you file your taxes jointly with your spouse and she is not a party in the lawsuit, she may file an injured spouse claim and receive part of the refund back.

Back Taxes

You must pay income taxes, if you work, and property taxes, if you own a home. If you failed to file a tax return within the past 10 years and owe back taxes, the government has a right to take your money to offset the debt. The IRS and the state government can levy your bank account, garnish your wages and take your federal and state tax refunds to apply the money to the balance your owe. Unlike creditors, the government does not need a court order to do so. You will receive a notice of an intent to garnish or levy before it happens.

Student Loans

If your federal student loan is past due for 270 or 360 days, the U.S. Department of Education Debt Collection Service can intercept your federal and state refund checks and apply them to the outstanding debt balance. In addition to taking your refund money, the Department of Education can garnish your wages and levy your bank account. You may prevent these measures by negotiating a repayment schedule and making payments on time.

Child Support

The Federal Tax Refund Offset program can intercept your federal and state tax refunds if you owe child support payments. The local child support enforcement agencies submit names of delinquent non-custodial parents, Social Security numbers and past-due amounts to the IRS. When the government processes tax refunds, it identifies those individuals who owe child support payments and takes all or part of the refund to offset the debt balance. The debtor receives a notice of offset that states the intercepted refund amount.