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Not everyone will get to keep their tax refund

If you have run the preliminary numbers for your 2019 taxes, you may have expected a sizable refund. Before you even file your income tax return, you may have thought of how you would spend that money.

Like other Missouri residents expecting a refund, you filed your taxes early in anticipation of seeing that deposit into your bank account. Unfortunately, it never came, and what you got instead was a letter indicating that your refund was seized to pay a debt you owe.

What kind of debts could cost you a refund?

There are certain types of debts for which the IRS can seize your refund, usually in this order:

  • It probably wouldn't surprise you to know that the IRS has first crack at your refund if you owe back federal taxes.
  • Second in priority are any state taxes you may owe.
  • If you owe back child support, the jurisdiction where you owe the money can request that the IRS take your refund to put toward that debt.
  • If you owe any money to a federal agency that is not taxed, such as student loans, your refund could be seized.
  • If you received an overpayment of unemployment compensation, then the repayment of that overage could come from your refund.

Fortunately, your credit card company can't just tell the IRS to take your refund to satisfy the debt you owe to it. However, once it goes into your bank account, your lender can go through the courts in an attempt to seize funds from it.

What happens if your spouse isn't on the debt?

When the IRS seizes your refund, it doesn't take into account whether the debt is yours alone. If you filed a joint income tax return with your spouse, he or she may not be too happy with losing his or her portion of the refund. Fortunately, it may be possible to retrieve the portion of the refund attributed to your spouse through innocent spouse relief, equitable relief or separation of liability.

Determining which option will yield the best results depends on your situation. Each relief option has its own regulations, rules and qualifications, so you would need to research each one in order to figure out what would work best. This can be an arduous process and would more than likely go more smoothly if you consulted with an experienced tax attorney.

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Ste. Genevieve Office
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Ste. Genevieve, MO 63670

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