Look no further than section 404.526 of the United States Code, which addresses this very situation.
According to this section, if your tax refund for a particular year isn’t enough to completely recover an overpayment, the case will remain with the Department of the Treasury for offset. This means that the government can use any future refunds or payments you make to offset the remaining balance owed.
It’s important to note that this process only applies if all criteria for offset continue to be met. In other words, if you no longer meet the requirements for offset, the government won’t be able to withhold any additional funds to pay off your overpayment.
Here’s an example to help illustrate how section 404.526 might apply in real life:
Let’s say that John owed the IRS $1,000 in taxes for the 2020 tax year. However, he accidentally overpaid by $500 when he filed his return. When John receives his tax refund for 2020, it’s only for $300 because he had some other tax liabilities that reduced the amount of his refund.
In this scenario, John’s tax refund is insufficient to cover the entire overpayment of $500. As a result, the case will remain with the Department of the Treasury for offset. If all criteria for offset continue to be met, the government could withhold any future refunds or payments that John makes until the remaining $200 balance is paid off.
It’s important to note that there are certain criteria that must be met in order for the government to offset future refunds or payments, such as being in compliance with all tax obligations and not having any pending bankruptcy filings. If John no longer meets these criteria, the government would not be able to offset any future refunds or payments to recover the remaining balance owed.
While it may not be ideal to have your tax refund offset in this way, it’s important to understand that the government has the authority to do so. If you find yourself in this situation, be sure to review the criteria for offset and understand your options for resolving the overpayment.
https://www.ssa.gov/OP_Home/cfr20/404/404-0526.htm
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