Identification

• Technically, the Department of Treasury's Financial Management Service only authorizes a tax refund offset when you owe non-tax federal debt, state income tax, child support and unemployment overpayment, according to the Internal Revenue Service website. FMS will send you a notice of an offset and alert the IRS to it, too.
  
  

Exception

• Commingling funds provides a loophole that allows any creditor to levy your funds. The creditor can file a lawsuit and obtain a garnishment order on your bank accounts. Assuming the judgment creditor can find the account to which you deposited your refund, it can levy any funds from the account unless you prove them exempt. Tax refunds are usually not exempt from a levy, but states can offer protection for those funds. As of 2011, no state or federal statute specifically defines an IRS tax refund as wages, and thus a refund is not exempt from a levy, according to the State of Louisiana Department of Revenue. The creditor can object to the garnishment of a refund under certain conditions, however, such as when a debtor does not own enough equity in a home to pay the mortgage and receives an exemption on its taxable value.
  
  

Joint Returns

• In most cases, when you file a tax return you and your spouse share liability for the debt and the refund. If an offset occurs, FMS can only offset the portion of the refund belonging to the spouse owing the debt. To request a refund offset from a joint return, you must file Form 8379 for Injured Spouse Allocation -- injured in this case refers to a financial rather than a physical ailment -- with your return or by itself. If you file Form 8379 alone, you must list your Social Security numbers as they appear on your return.
  
  

Considerations

• If you have a legitimate excuse, you can dispute the offset with the agency receiving it. For instance, you may have already paid a debt, but the agency did not process the payment yet. If you do still owe the debt, you should look for ways to repay it. Usually, you must remit payment in full or set up an installment plan. If you owe money because of an unemployment or Social Security overpayment, however, the agency sometimes waives the debt if you can prove that repaying it would cause a hardship.