Tax refunds are now becoming a mid-year bonus for many taxpayers. A majority of taxpayers receive a refund check after filing returns. The refund is brought about by overpayment of taxes and claiming of credits that warrant a refund. However, if you are owed taxes and are expecting a tax refund, you need to be aware that there are specific situations that can cause your refund check to be seized. Some of these circumstances are explained below:
- Student Loan Repayments – Student loans have the lowest interest rates, thus making it one of the best loans to have. On the flip side, these loans are hard to default on as the lenders can seize any funds, including your tax refunds and even your Social Security distributions. Therefore, if you are expecting a tax refund and have defaulted on your student loans, be aware that the check for your refund can be seized to pay of the outstanding balance.
- Bankruptcy – Another reason that your tax refund can be seized is in the case of a bankruptcy. The liquidators can write to the IRS and have the refund check seized to pay off some of the creditors.
- State and Federal Outstanding Taxes – If you owe taxes from the past, the tax refund can be used to settle such back taxes. The Federal tax authority and the State tax authorities are always trading information and you can easily get your IRS refund check seized to pay off past due taxes.
- Child Support- If you owe child support, your refund check can also be seized to pay off the due funds. The law allows a person who is owed child support to write to the IRS and seize funds the refunds check of the person owing the support amount to pay off the overdue fees.
Circumstances when your Refunds Cannot be Seized
Not all debts can cause a seizure of your refund check. You should therefore not be worried that your refund check will be seized in many of the other debts that you may owe. Some of these financial situations that cannot warrant a seizure of your refunds include the following:
- Mortgage, Credit Card, and Other Personal Debts – Personal debts such as mortgage loans, credit card loans, and other loans cannot cause a seizure of your tax refund. Therefore, if you have defaulted on your mortgage or other personal loans, you should not be worried that your tax refund will be seized.
- Collectors – If one of your creditors has forwarded you to collectors to recover funds owed, you can rest assured that these collectors cannot seize your refund check in any way to pay off the due funds.
Options for Married Couples
If your refund check is due for seizure due to some of the aforementioned reasons and you are married, your spouse can be at a disadvantage. If a married couple files jointly, then the refund that is due to both spouses can be seized to pay off a debt held by one of the spouses. Therefore, if a couple suspects that a check will be seized, then they can go for the following options:
- Filing Separately – The couple can file separately so that the spouse who has debts can have his or her check seized without affecting the refunds of the spouse.
- Injured Spouse Relief – The spouse who is not liable for seizure of refunds can apply for Injured Spouse Relief so that the portion of his or her refund can be released as the rest of the refunds can be seized and used against the debts due.