One of the consequences of falling behind on your federal student loan repayments is that you might not get a tax refund. And if you’re married, it could also affect your spouse. However, if you’re truly struggling with your personal finances, there are some steps you can take to challenge a tax refund garnishment.
When can the government garnish my refund over student loans?
The government can garnish your tax refund after any federal debt goes into default, including student loans. Your loans are in default when you’re more than 270 days late on repayments. Depending on how much you owe and the size of your refund, the government might withhold part or all of your refund.
The government won’t garnish your tax refund if you’re late on private student loans — though you can face other consequences like having your loans go into collections and damaging your personal credit.
How do I know if I have a tax refund offset for student loans?
The Treasury Department’s Bureau of the Fiscal Service (BFS) will send you a notice of offset at least 65 days before your taxes are due — usually in the fall. The notice should tell you:
Your original tax refund amount.
How much it’s withholding.
The agency that’s receiving the offset.
The agency’s contact information.
How can I stop the government from taking my taxes due to student loans?
Once you receive a notice of offset, you have 65 days to request a review of your account. You might be able to successfully challenge your tax offset if:
You already repaid your student loans.
You’re currently making repayments based on a repayment agreement.
They’re someone else’s loans mistakenly under your name.
You’re currently going through bankruptcy proceedings.
Your loans were discharged during bankruptcy.
Your loans are eligible for discharge due to death, disability, school closure, identity theft or your school not following federal law when issuing your loans.
You also might want to reach out to your student loan servicer to learn about the procedure for disputing your garnishment — especially if you’re facing financial hardship.
How to fill out the tax offset hardship refund request form
If you believe you’re eligible for an exemption from a tax offset due to financial hardship, reach out to your servicer to request a form to complete and submit. You might be eligible for an exemption if:
You ran out of unemployment benefits. Submit a notice showing that you’re no longer eligible for unemployment benefits, despite not having a job.
You’re facing foreclosure. Submit a notice issued by a court in the past three months that states how much you owe.
You’re facing eviction. Submit an eviction notice in the past three months from your rental agency or the mortgage holder of your building that’s signed by an official and states how much you owe.
Your utilities have been shut off. Submit a notice from your utility company in the past three months that states your utilities have been disconnected or shut off and how much you owe.
You’re homeless. Your servicer might ask you to provide a temporary address to get in touch with you until you have permanent contact information available.
Typically, you just need to provide your contact information, Social Security number and check off which type of exemption you qualify for. Once you’ve signed and dated the request, follow your servicer’s instructions to submit the form and all relevant documents either by mail, fax or email.
It can take up to 30 days for your servicer to process your request. If approved, you still might not get your full refund, depending on the specifics of your financial situation. You can only get approved for a tax offset hardship refund once.
Will my spouse’s tax refund be affected?
It’s possible for your spouse’s tax refund to also get garnished if you’re married and file a joint tax return. However, you can prevent this by submitting IRS Form 8379, also known as the Injured Spouse Allocation Form. You can either submit this along with your tax returns or your spouse can submit it after separately.
If you think you might be in danger of falling behind on your federal student loan repayments, there are several steps you can take to prevent tax refund garnishment.
1. Stay on top of repayments
Making sure you repay your student loans on time is key to avoiding default, and therefore a tax offset. You can make this easier by signing up for autopay through your servicer — typically this comes with a 0.25% interest rate discount.
You also might want to consider making a budget for yourself if you’re having trouble coming up with the funds when they’re due.
If you’re struggling with repayments — or think you might in the future — reach out to customer service to find out what your options are.
3. Apply for deferment or forbearance
Temporarily short on funds? Federal loans come with several options to put your student loans on hold to avoid default. It’s a helpful option if you’re going back to school, recently lost a job, are going on active military duty or are going through a short-term period where money is tight.
Already defaulted? You can wipe the slate clean by applying for a federal Direct Consolidation Loan. This involves taking out a new student loan to pay off your current loans, including those you’ve defaulted on. You’ll get to choose a new repayment plan, servicer and get an interest rate that’s a weighted average of the rates you already have.
6. Get student loan rehabilitation
Another way to get out of default is to apply for student loan rehabilitation. Rehabilitation involves agreeing to make nine repayments over 10 months that are no more than 20 days late. How much you pay depends on your income.
You can get started on rehabilitating your federal student loans by reaching out to your servicer.
One of the consequences of defaulting on your student loans is losing your tax refund. But there are several ways to get some or all of that refund back if you’re facing serious financial problems. And if you stay on top of your loans, there are steps you can take to prevent the BFS from sending that tax offset notice in the first place.
Call the IRS as soon as possible to explain the situation. You can reach out by calling 800-829-1040.
Yes. You also won’t be able to receive Social Security benefits, including disability benefits, if you default on your federal student loans. Defaulting on private loans won’t affect this.
No. If your spouse is claiming innocent spouse relief by filing IRS Form 8857, they don’t need to submit an Injured Spouse Allocation Form. Innocent spouse relief should prevent their tax return from being withheld.
Your spouse may qualify for innocent spouse relief if:
You omitted income and they weren’t aware.
You’re divorced, separated or no longer living together.
Given all the facts and circumstances, it’s not fair to hold them liable for your taxes.
Anna Serio is a trusted lending expert and certified Commercial Loan Officer who's published more than 1,000 articles on Finder to help Americans strengthen their financial literacy. A former editor of a newspaper in Beirut, Anna writes about personal, student, business and car loans. Today, digital publications like Business Insider, CNBC and the Simple Dollar feature her professional commentary, and she earned an Expert Contributor in Finance badge from review site Best Company in 2020.
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