Tax Refunds: How the IRS Can Shift Yours and What You Can Adjust

They embody the two R’s central to tax season: tax returns and tax refunds. Though many might not look forward to submitting their returns (a nod to those accountants who do so out of passion), I’d wager that everyone enjoys receiving a refund, assuming they’re fortunate enough to get one.

Even though the titles sound alike, returns and refunds are hugely different , even though they are crucial elements of the tax filing process. The return is the document you submit to the IRS detailing all the taxable income earned by you (and potentially your spouse) during the prior year, used to calculate the amount owed in income taxes. Should you find yourself having had too much withheld from your paycheck compared to what you actually owe—or if you receive your tax due lowered Through alternative methods — the IRS will issue you a refund for the remaining amount.

Based on data provided by the IRS, more than 42 million tax returns As of early March, these claims have been submitted. Among them, nearly 30 million individuals were qualified for a reimbursement, with the total sum disbursed up until now reaching approximately $102 billion. Consequently, the mean payout this year exceeds slightly what was typical at this juncture last year.

Before you get excited about possibly earning more money this year, continue reading to learn under what circumstances the IRS could take part or all of your refund. Don’t worry though, as we’ll also cover how you can maintain control over your refund.

For more tax tips , take a look at how you could receive a deduction for doing student loan payments and use This tax guide will help you file your taxes effortlessly. .

This is when the IRS could potentially adjust your tax refund.

Delinquent taxes: This is typically the scenario where your tax refund gets claimed by the IRS. Should you have outstanding tax debts from prior years, at either the federal or state level, the agency generally applies your current year’s refund to settle that debt.

For instance, if you owe $500 in federal taxes but are due a refund of $1,200, the IRS will take what they're owed first; thus, you'd get just $700 back. Alternatively, should your debt be higher—say $3,000—the full $1,200refund would be used towards settling that debt, leaving an outstanding balance of $1,800.

Delinquent child support: Here’s another scenario: If you owe money to an ex-spouse or partner for child support, the IRS has the authority to take part or all of your refund to settle this debt. This process works similarly to how they handle tax debts, as mentioned earlier.

Unemployment debt: The third kind of debt that the IRS might offset with your tax refund is related to unemployment compensation debts. This occurs when an individual receives more in unemployment benefits than they were entitled to, leading them to owe money back—sometimes even having to repay everything received.

Here’s how you can exert control over your refund.

None of this information probably made for an enjoyable listen, especially not if you find yourself in such circumstances. However, try not to worry excessively since you do possess certain advantages concerning your refund process, specifically regarding its method and location distribution.

Split refund: You can divide your refund amount across up to three different financial institutions according to whatever proportions suit you best. Even though receiving your tax refund directly into your bank account may be typical, this choice lets you allocate parts of it towards various accounts like a retirement fund or a health savings account instead. In order to proceed with this, you should complete the necessary forms. Form 8888 .

Offset Bypass Refund: You may consider opting for this solution if you're facing significant financial difficulties despite having an unpaid debt as mentioned previously, and wish to ask the IRS not to seize your refund this year. However, ensure that your debt is solely with the federal government and does not involve any state-level or other governmental agency obligations before proceeding.

Since there isn’t a form for this choice, your options are to dial the IRS at 800-829-1040 or contact them directly. the Taxpayer Advocate Service , but ensure you act swiftly before the IRS seizes part of your refund. Once that happens, there’s nothing you can do about it.

For more tax tips and coverage , find out How recent Internal Revenue Service cutbacks could affect your tax situation and whether or not you would need to cover their expenses if the government closes down .