As the 2025 tax season winds down, many Americans are eagerly awaiting their refunds. However, receiving a refund isn’t always guaranteed, and even if you’re eligible, the IRS can still legally withhold it under certain circumstances. While most refunds are processed efficiently, some taxpayers may find their refunds delayed or withheld entirely due to unpaid debts or unresolved financial obligations. Understanding why this happens—and how to avoid it—can help you plan more effectively for your financial year.
Why the IRS Issues Income Tax Refunds
Tax refunds typically occur when you’ve overpaid your tax liability throughout the year. This often happens through payroll withholding or estimated tax payments. Once you file your return, the IRS reconciles how much tax you actually owed versus how much was paid—and if you paid too much, you’ll get a refund.
Refunds can also stem from tax credits, which reduce your tax liability and may result in extra cash back in your pocket:
| Type of Credit | Description |
|---|---|
| Nonrefundable Credit | Lowers your tax bill to zero, but any unused portion is forfeited |
| Refundable Credit | Any excess credit beyond your tax owed is returned to you as a refund |
For example, the Earned Income Tax Credit (EITC) is fully refundable and can significantly boost your refund if you qualify.
Why the IRS May Withhold Your Tax Refund
Just because you’re eligible for a refund doesn’t mean you’ll receive it immediately—or at all. The IRS has the authority to withhold or offset refunds in several scenarios, primarily when the taxpayer owes certain types of debt:
1. Unpaid State Taxes
Even if you’ve paid your federal taxes in full, any outstanding state income tax debt can trigger a refund offset. Forty-one U.S. states levy an income tax, and failure to pay your balance may prompt the IRS to withhold your federal refund to help cover your unpaid state liability.
2. Defaulted Student Loans
With more than $1.6 trillion in outstanding federal student loan debt, the government aggressively pursues borrowers who default. If your loan is in default, the IRS may seize your refund and apply it toward your outstanding loan balance.
3. Delinquent Child or Spousal Support
The Treasury Offset Program allows for garnishment of tax refunds to pay overdue child support or alimony. If you’re behind on payments, your state child support enforcement agency can request that funds be intercepted from your refund to settle what you owe.
What to Do If Your Refund Is Withheld
If you find that your expected refund hasn’t arrived, or you’ve received a notice stating that it’s been offset, don’t panic—there are steps you can take:
- Contact the Bureau of the Fiscal Service (BFS):
This agency handles refund disbursement and offsets for the IRS. Call 1-888-826-3127 to inquire about your refund status and get clarity on the offset reason. - Check the IRS’s “Where’s My Refund?” Tool:
Use the IRS refund tracker to check your refund status in real time. Delays or offsets are often listed there with brief explanations. - Work Out a Payment Plan:
If your refund is being withheld due to a debt, contact the appropriate agency (IRS, state revenue department, loan servicer, or family court) to set up a payment arrangement. This may prevent future refunds from being seized. - Review Your Tax Transcript:
An IRS tax transcript can offer detailed information about any offsets or issues tied to your account.
Planning Ahead for Late Filers
While the general tax deadline has passed, those who filed for an extension have until October 15 to submit their returns. If you’re in this group, take the opportunity to:
- Review any outstanding debts and contact the appropriate agencies.
- Resolve delinquencies or at least establish a payment plan.
- Communicate with the IRS if you foresee difficulties—proactive contact can prevent surprise refund withholdings.
Getting a tax refund can feel like a financial windfall, but it’s important to manage your expectations. If you owe federal or state debts, are behind on student loans, or have unpaid support obligations, the IRS may legally seize your refund to cover those balances. Stay informed, review your financial obligations, and communicate with the proper agencies to ensure that if a refund is due, it lands in your bank account—rather than being diverted.
FAQs
How long does the IRS take to issue a refund?
Most refunds are processed within 21 days of e-filing, but it can take longer if your return requires additional review or is subject to an offset.
How can I check if my refund was withheld?
Use the “Where’s My Refund?” tool at IRS.gov or contact the Bureau of the Fiscal Service at 1-888-826-3127.
What happens if I filed late but expect a refund?
Even if you file after the deadline, you can still receive your refund, assuming no debts are owed. However, penalties apply if you owe taxes and file late without an extension.