Why You Might Not Get Your Tax Refund
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You Have Past Tax Debt
If you have an outstanding tax debt from previous years, the IRS can just take your expected refund and apply it to the old debt without so much as a thank you note. It does not matter whether the debt is from last year or more than a decade ago – the IRS has a long memory and will take the owed funds whenever the discrepancy is discovered.
Keep in mind, it does not matter whether the money you owe is for federal or state taxes. If you’re behind on your state tax bill, the state government can either seize your state refund, or apply to the IRS to seize money from your federal refund.
You Owe Child Support
The Federal Government will eventually notice if you are behind on child support payments. In fact, federal and state agencies can place levies on your refund to help pay your outstanding child support debt.
Don’t make the mistake of thinking you’re home free when your son or daughter reaches 18 years of age. If you are still delinquent, this can continue even past the time that your child no longer qualifies for support.
You’re in Bankruptcy
Paying down debt can be a great way to use your tax refund, and if you’re currently going through bankruptcy, your bankruptcy trustee might make that decision for you.
Under Chapter 13 bankruptcy, the bankruptcy trustee can request that the court take your refund and apply it to your debts.
Under Chapter 7 bankruptcy, filers may lose their refund, but can exempt some of it from seizure.
Once your bankruptcy is fully discharged, your refunds will be safe.
If you think this could happen to you, check with your bankruptcy trustee.
You’ve Defaulted on Student Loans
Part of the reason that student loans have much better interest rates than other loans is because they’re nearly impossible to escape. If you get old enough, the government can even take payments out of your Social Security check to cover them. Therefore, it shouldn’t come as a shock that the IRS can turn your refund over to the Department of Education to pay for any loans you’ve defaulted on.
Wrong Address
The IRS, in 2011, held $153 million in refunds it could not deliver because of not having correct mailing addresses on those people, according to CNN.
The IRS will not try to locate you by phone or email. It’s up to you to make sure the IRS has your correct address.
Call the IRS if you suspect this is the problem. To ensure this does not happen again, especially if you move a lot, have your refund directly deposited into your bank account.
Best thing to do? Always choose to have your refund deposited directly into your bank account if you can (and triple check those numbers to make sure they're right!), especially if you know you're moving soon.
Also, if you suspect you fall into this category, check in with the IRS on their website or call their hotline to make sure there aren't any old refunds lurking around out there that you deserve.
Married Filing Jointly
You should be aware that if you file jointly with your spouse and he or she is in a situation where his or her tax refund will be seized, yours will be seized as well.
Luckily, there are a couple of things you can do to hold on to your share of the refund:
File Separately.
If you file your taxes as married filing separately, you don’t have to worry about this issue. Your refund will be safe, and your spouse must bear the burden of his or her financial issues alone.
Injured Spouse Allocation.
If you want to avoid having your part of the refund seized, you can file for “injured spouse relief” to make your case to the IRS that you paid your own share of taxes and didn’t have anything to do with the situation.
You must have your own income and have made tax payments or had taxes withheld from that income, and you must be expecting a refund of at least some of those taxes that you paid on your own income.
To apply for injured spouse relief and determine how much you should get back, you’ll need to complete Form 8379, “Injured Spouse Allocation.”
Also, don’t confuse injured spouse relief with innocent spouse relief which comes into play when the other spouse has falsified a tax return, under-reported income, is guilty of tax evasion or fraud, or committed other acts that might have civil penalties to both spouses if a joint return was filed.
Holding the Refund
There are several reasons that the IRS may hold your refund. I
t isn’t taking your refund (not yet, anyway), but the IRS can keep it from being provided to you.
In each of these situations, the IRS should contact you by mail to provide more details and a plan for resolution.
You Didn’t File Taxes in a Previous Year
If you didn’t file your taxes in a prior year, the IRS may hold your refund until you prove that you don’t have a tax debt from that year.
The only way you can get the IRS to release your refund is if you go ahead and file for that year, or send a letter explaining why you didn’t file, and request more time.
Your Spouse Filed an Injured Spouse Allocation Form
If your spouse filed a Form 8379 as detailed above, the IRS may put your refund on hold until it can process all the paperwork and sort out who should get what.
You’re Currently on a Payment Plan for Back Taxes.
If you couldn’t pay your taxes in full in a previous year and had to contact the IRS to work out a payment plan, the IRS may hold your refund until it has determined whether the money should be put toward your payment plan.
If you are interested in the status of your tax return, you can check the status using the Where’s my tax return? tool provided by the IRS.