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Can Your Federal Income Taxes Be Garnished for Overpaid Unemployment Benefits?
Garnishment Vs. Offset
- In the strict sense of the term, your federal income tax refunds are not subject to garnishment. Garnishment occurs when a creditor seizes some portion of your assets to satisfy a debt. However, the law places limits on garnishment; only a portion of assets may be garnished, no matter how large the debt. Wages devoted to basic living expenses, some government payments such as Social Security benefits and other assets are exempt from garnishment altogether. On the other hand, offset applies to more limited categories of assets, including federal income tax refunds. An offset against your federal income tax refund can apply to your entire refund check for as many years as is necessary to satisfy the debt.
How Overpayments Happen
- Displaced workers who are able to find replacement jobs often report their good fortune only after they have received their first paychecks, instead of when they first report to work, which results in overpayment. Other displaced workers are unable to obtain accurate advice about income they should report, which also results in overpayments. Overburdened employment agency workers dealing with a confusing tangle of federal extensions and regulations often miscalculate benefits, with some workers unfairly denied while others collect more than they should, according to ABC News Money.
Repaying Unemployment Overpayments
- If you receive an overpayment through an honest error on your part or through no fault of your own, the state will usually work with you to develop a repayment plan for the amount that you owe. However, if you fail to make a payment arrangement or renege on the payment you make, the state may garnish a portion of any future unemployment benefits you may receive. Some states may garnish your wages when you return to work, or intercept refunds from your state income tax returns, according to ABC News Money.
Treasury Offset Program
- Beginning in the second quarter of FY 2011, states may seek to offset some or all of your federal income tax return to recover unjustly paid unemployment insurance payments. The state must establish that you obtained the overpayment by fraudulent means. Before executing the offset, the Internal Revenue Service will send you a notice informing you of the intent to intercept your income tax return. If you file a joint return and your spouse is subject to federal tax offset, you may file an "innocent spouse" petition for release of the portion of the federal tax refund that is rightfully yours.