Can I Get an Income Tax Refund If I’m Making Payments on Federal Taxes Owed?

Even though most American taxpayers wind up getting a tax refund from the federal government, some taxpayers still owe the Internal Revenue Service money and will not get any type of refund until they clear up their balance and pay off any federal taxes owed.

If you’re wondering if you will get a tax refund when you’re still making payments on an installment agreement or payment plan you set up with the IRS, the simple answer is “no”.

But read on for details about what happens to that income tax refund you were expecting this year if you had old taxes due.

Under tax law, some or all of your federal income tax refund check can be seized, and you will not receive it, if you owe any of the following four debts: federal taxes; state taxes; delinquent/defaulted federal student loan payments; or past-due/delinquent child support.

For the latter obligation, it is the Federal Tax Refund Offset Program that collects past-due child support payments from the tax refunds of parents who have been ordered to pay child support. The program is a joint effort between the federal Office of Child Support Enforcement, the IRS, the Financial Management Service of the Department of the Treasury, and state child support agencies.

The IRS will use any refunds owed to you to pay down your current balances on any of the debts mentioned above. This is a condition of the installment agreement you set up when you found out you owed taxes from a prior year, so you may not even see a refund check until that entire balance is paid off in full.

The IRS will also automatically apply any tax refunds to any prior tax balance owed, and you will have to keep making payments on schedule or keep having your refund taken, until your balance has been cleared.

Making Payments on Federal Taxes Owed

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Carrying a big balance of outstanding taxes can obviously cause financial stress and you may be wondering how and when you will be able to pay off that balance in full. The good news is that the IRS does agree to payment plans over time. The IRS also accepts credit card payments and may even grant you some extra time to pay back your taxes based on your situation.

If you owe $50,000 or less, and you have filed all required tax returns, you can set up an installment plan online with the IRS. That $50,000 figure includes all your combined taxes penalties and interest. When your balance falls under that limit, an installment plan allows you to pay off your taxes in an agreed-upon time frame, ranging from as little as a few months to as long as 72 months, or six years. You’ll have to fill out Form 9465, Installment Agreement Request.

You can request an extension on payments by putting an application through the Online Payment Agreement section of the IRS website, or by calling 800-829-1040.

Keep in mind that requesting to set up an installment payment that lasts longer than 120 days means you will need to pay a user fee of $105, and $52 for agreements where the payment is deducted from your bank account. For low-income taxpayers, the fee could be as low as $43.

People with really big tax bills – totaling more than $50,000, but less than $100,000 – can also get some relief. The IRS says you may qualify for a short-term repayment agreement if your total tax balance is under $100,000.

The short-term payment plan gives you 120 days to pay your tax bill and no setup fees are charged. If you want to have a longer payment plan, and you owe more than $50,000, you’ll need to also submit a Collection Information Statement (Form 433-A, Form 433-B, or Form 433-F). That gives the IRS detailed information about your finances, such as your income, assets and expenses. The downside of going this route is that the IRS may file a Notice of Federal Tax Line when you owe a large tax bill. So to avoid this possible outcome, one strategy would be to pay down your tax balance to below the $50,000 level if possible.

No matter what your tax bill, if you want to pay off some of that balance using a credit card, you can visit sites such as www.pay1040.com, www.payUSAtax.com, and www.officialpayments.com/fed to authorize your payment. This can be a valuable strategy for anyone who is paying a lower interest on their credit cards than the interest imposed by the IRS on the tax balance. It’s also helpful for those who need to get their taxes owed to under $50,000.

Whether you decide to set up an installment agreement or a payment plan with the IRS, it’s important that you understand any tax refund due you will be put towards your outstanding tax balance – at least until that tax debt, student loan debt or child support debt is paid off or satisfactorily resolved.

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