⏳Tax filing window for 2023 is now open. Last Date: April 16 ⏰
Ever wondered if the IRS can keep your tax refund? Taxes can be tricky, especially if you also pay self-employed taxes, so knowing when the IRS could hold onto your money is essential when navigating tax season. After all, if you’ve spent the year maximizing your refund, you don't want it collecting dust with the IRS when you could use it to grow your business.
If the IRS keeps your refund, it generally means you're not on good terms with them. They can do this for a couple of different reasons.
If you "defaulted" (missed payments for 270 days) on your student loan, your tax refund might be used to offset what you owe. The only way to avoid this is if you qualify for loan forgiveness. But you'll need a notice from the Treasury Department for this.
Your federal tax refund isn't the only thing that can be affected by defaulting payments. Your state can also withhold your refund until you pay up. In more severe cases, your employer may also be asked to hold a percentage of your income. You should reach out to the lending entity to get this fixed.
If you haven't filed your past tax returns, the IRS can pause your refund to cover your back taxes. They usually do this through a "delinquent return inquiry." Basically, they'll keep your refund on hold until you complete all your overdue tax returns and pay any outstanding taxes. This is their way of making sure everyone meets their tax obligations.
The IRS can also use your refund to cover the amount you owe. They'll usually send you the remaining money, as you specified on your tax return, either through direct deposit or a check. You’ll also get a notice explaining why they took some of your refund and what they used it for.
If the IRS suspects you messed up your current-year tax return or find a mistake in a previous one, they might pause your refund. If they believe you claimed deductions or credits you shouldn't have, they'll give your return a closer look.
Your refund amount might also change because of this. You'll have 60 days to convince them they're wrong, otherwise you'll need to file an amended return. If they're auditing your past returns and think you owe more taxes, your refund could be frozen until they sort it out. But if you can prove that you don't have any back taxes, they'll release your refund or make any necessary corrections.
You’ll need to show the IRS at least three years’ worth of previous tax records in the case of an audit. If you use FlyFin, you can get free audit insurance and unlimited support from expert CPAs.
Another reason the IRS might keep your refund is outstanding spousal or child support. Your refund can be used to offset the overdue spousal support (often part of child support). You are allowed to contest the debt but will need to contact your state’s child support entity to do this.
In some cases, your refund might be used to offset certain overdue payments that are solely your spouse’s responsibility. You can request for your refund to be returned in this instance. However, you can only do this if you’ve filed a joint tax return with them.
The most common account issues you could face are identity theft and problems with claiming your dependent. If the IRS suspects your account might be compromised due to fraud, you’ll need to get in touch and prove your identity for them to release your refund.
If two people claim a dependent on their returns, the IRS will hold on to your refund until the correct person provides sufficient evidence to their right to claim the dependent.
Your refund should generally show up within 21 days. If not, you should check your IRS account to figure out the problem or directly clear things up with the IRS. A tax professional can do this by talking to the IRS on your behalf.
They'll look at your tax history by reviewing your tax account transcripts. With this info, your tax pro can understand what's happening and help you sort things out with the IRS, making sure you don't have refund problems in the future.
FlyFin CPA Team
With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.