The IRS Kept or Reduced Your Refund: What the Offset Is

You expected a $3,000 refund. You check your account one morning and there’s a $400 deposit. No explanation, no prior notice you remember. Where are the other $2,600? you ask, with that mix of confusion and anger that only money topics produce.

Most likely, your refund went through an offset: the government took part of your refund to pay a debt you had with some agency. It’s not a bank error or theft: it’s an official process, and it has rules, an explanatory letter, and a way to dispute it. Let’s take it apart.

What the offset is and who does it

The offset is executed by the Treasury Offset Program (TOP), which isn’t part of the IRS but of the Bureau of the Fiscal Service of the Department of the Treasury. It works like this: before sending you the refund, the system matches your name against a list of outstanding debts with government agencies. If there’s a match, the refund is reduced by that amount and the money goes directly to the creditor agency.

The IRS simply applies the reduction when it processes your refund.

Which debts can eat your refund

Not just any debt qualifies: they have to be debts with the government. The most common categories are:

• Past-due federal taxes. You owed from 2024 and never paid it: the 2026 refund absorbs it first.
• State income taxes. Your state can ask the federal program to hold your federal refund for past-due state taxes.
• Past-due child support. One of the most frequent causes: if you owe court-ordered child support payments, the refund can be reduced or eliminated completely.
• Non-tax federal debts. Seriously delinquent federal student loans, federal agency loans, outstanding federal fines.
• Overpaid unemployment compensation. If you received unemployment benefits that were later determined not to belong to you, that debt also enters the program.

Important note: debts with private creditors —credit cards, personal loans, medical bills— can’t touch your federal refund through this route. If a private collector tells you “the IRS is going to give them your refund,” that’s a collector’s lie, not the official program.

The letter that arrives (and what it says)

When your refund is reduced by offset, you receive a notice letter explaining exactly what happened. The letter includes:

• The original amount of your refund
• How much was applied to each debt
• Which agency each part went to
• The balance left for you (if anything remained).

The letter can arrive before or together with the reduced refund. If you received the small deposit and still don’t have the letter, wait a few days: the mail and the deposit don’t always travel together. And keep that letter: it’s your map for everything that follows.

How to dispute: with the agency, not the IRS

Here’s the most common mistake: calling the IRS to fight the offset. The IRS can’t help you with that, because the debt isn’t theirs: it belongs to the agency that reported it. The dispute goes to the creditor agency, which appears in the letter.

The practical steps:

1. Read the full letter and identify the agency and the amount applied.
2. Contact that agency, not the IRS. Ask about the debt details and the dispute process: each agency has its own.
3. Gather your evidence. If the debt was already paid, if the amount is wrong, or if it doesn’t belong to you, you’ll need documents proving it.
4. Act fast. Disputes have deadlines, and the longer you wait, the harder it is to reverse.

And a special case worth its weight in gold to know: the injured spouse. If you filed jointly and the debt belongs only to your spouse —for example, their child support from a previous relationship—, you can recover your part of the refund by filing Form 8379 (Injured Spouse Allocation). It’s a separate form filed with the return or after, and it asks the IRS to split the refund between the two spouses before applying the offset. Many people don’t know it exists and lose their part without fighting for it.

What to do today, in order

1. If your refund arrived reduced, wait for the notice letter and read it completely: the map is there.
2. Identify the creditor agency and contact it directly for the details and the dispute.
3. If the debt was your spouse’s and you filed jointly, consider the Form 8379 injured spouse.
4. If the debt is legitimate, consider a payment plan with the agency so it doesn’t happen again next year.

This content is informational and is not tax advice. For your particular case, consult the official sources or an authorized professional.

Official sources

• IRS – Topic 203
• Bureau of the Fiscal Service – TOP