Can Your Tax Refund Be Garnished?
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Jordan Rosenfeld
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Molly Sullivan
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While it’s common for people to carry debt, if you aren’t keeping up payments on it, you can be subject to wage garnishment, in which your earnings can be withheld by your employer, or deducted directly by the IRS from your account, according to the U.S. Department of Labor (DOL).
The kinds of debt subject to garnishment include court ordered child support, unpaid taxes and even credit card or student loan debt if these have moved past the collections stage.
Anyone facing significant debt that has moved onto collections or who has received a court garnishment order and is due a tax refund this year will want to know if their tax refund can be garnished, too.
Read on to find out about the garnishment process.
When Can Wages Be Garnished?
Just having a significant amount of unpaid debt doesn’t mean an immediate garnishment will take place. The individual, agency or organization to whom the debtor owes the money will have to obtain a court order to have the money garnished from wages first.
However, any earnings the court deems “income” are subject to garnishment, including wages, salaries, commissions, bonuses, income from pension or retirement plans and, in some cases, tips. While there’s little you can do once a garnishment order is in effect to stop it, you are legally protected from being fired or demoted by your employer for having one, under Title III of the Consumer Credit Protection Act, according to the U.S. DOL.
Who Can Garnish Them?
Any individual, organization or agency that has received a court order can garnish your wages, however with more consumer based debts, like credit card debt, you typically would first be sent to collections and could even look into debt settlement or consolidation possibilities before that happens. You may also file an objection to the garnishment if you do not believe it is fair or legal, which will be considered in your garnishment hearing.
Garnishing Your Tax Refund
Your tax refund can be garnished. The good news is that only state and federal government agencies can do so, according to TurboTax. The bad news is that if your debt is to the government in the form of unpaid taxes, then you probably won’t even see your refund — the IRS will pay itself first by applying any refund you would have gotten to your back taxes.
Otherwise, your tax refund would likely land in your bank account or mail box first, before any private creditors would be allowed to garnish it. However, it’s not wise to try and hide a tax refund — they’ll figure it out and then you’ll owe even more money.
In order of priority, state child support debts always come first. So if you happened to be in arrears on both child support and federal student loans, for example, but you overpaid in income taxes and thus are expecting a refund, your refund will go first to the state child support, and then if there’s anything leftover, to your federal student loans.
If all state and federal debts are settled up, other creditors will have the last crack at your income.
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