Taxdebtfilter: where's my money going?
March 24, 2010 7:52 AM   Subscribe

Why is federal refund reduced because of money I owe the state? Is the fed paying the state this amount and thus reducing my debt to the state?

my federal refund: $1900. they only gave me $1792.

I owe past taxes to the state tax department, which has been passed off to collections, which I've been paying gradually; current balance $167.50.

also, the state owes me $86 for this year.

usually the state would subtract the current refund from the debt owed to them, but since the debt to state is in collections, will the state just send me the current refund after the collections agency tells them that I've paid?

and most importantly, does this reduce my debt to the state by $108 or what? it seems unlikely that the fed would contact the state and say "we chipped $108 off for you, here it is."

but that is exactly what should happen. what is going on here?
posted by herbplarfegan to Work & Money (6 answers total)
When the IRS adjusts your refund, they should send you a letter saying why. Usually the discrepancy is because they are allowed to directly change some of the numbers (as a "math error"), rather than accepting it and then sending an automated audit letter in 6-9 months.

So the question is: do you know that it was reduced for the state debt, or are you guessing?
posted by smackfu at 8:07 AM on March 24, 2010

for that reason, it's certainly possible that it isn't the state debt that's affecting it;
I haven't received the letter yet. I'm operating as if it is, because I've had this happen before.

the difference is that the state debt wasn't in collections then.
posted by herbplarfegan at 8:20 AM on March 24, 2010

can the hive examine the question on the presumption that in this case the state debt is the reason for the deduction?
posted by herbplarfegan at 8:50 AM on March 24, 2010

It's possible. When you say "collections" do you mean you have an installment agreement with the state, or you're paying a private collection agency?

if you owe delinquent state income taxes, back child support, or delinquent non-tax federal debts such as student loans, etc., the Department of Treasury's Financial Management Service (FMS) will deduct the past-due amounts from the payment that appears first on the payment file received from the IRS (the IRS payment file orders accounts from the lowest to the highest routing number). If the debt exceeds the payment designated for the account that appears first on the payment file, FMS will reduce the payment designated for the account that appears next, etc. For questions about the deductions for past-due amounts, call FMS toll-free at 800-304-3107.

You will receive a letter explaining any adjustments the IRS made to your refund amount and direct deposit(s). You will receive a separate letter from FMS explaining any offset amount, the agency receiving the payment, the address and telephone number of the agency, and amount of your refund/direct deposit that was offset. If you dispute the debt on the letter you receive from FMS, you should contact the agency shown on the notice, not the IRS, because the IRS has no information about the validity of the debt.

So either wait for such a letter or call the number.
posted by dhartung at 11:12 AM on March 24, 2010

a letter from the state was in my mailbox-- they were a lot more helpful at the ph.# it listed than I'd thought possible.

they actually acknowledge 2009's refund and expect the portion from the fed (who take a "convenience fee" of $21, btw) and will be refunding me the difference in 6-8 weeks.
posted by herbplarfegan at 8:16 PM on March 24, 2010

--and by collections I mean a private agency.
posted by herbplarfegan at 8:19 PM on March 24, 2010

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