Video transcript:
Hello, I'm Scott from TurboTax with some important information about your tax refund.
Do you have an outstanding debt that's past due and you're concerned that a collection agency will take your federal tax refund because of it? Well, you’ll be happy to know that most collection agencies aren’t able to claim your tax refund directly from the IRS.
There are only four types of debt for which the federal government will withhold your tax refund or send it to one of your creditors. These debts include past-due federal taxes, state income taxes, child support payments and amounts you owe to other federal agencies, such as federal student loans you fail to pay.
As a result, the collection agencies that your other creditors hire to obtain payment from you cannot intercept or garnish your tax refund.
For example, if you've been unable to pay your monthly credit card bill and the company sends your account to a collection agency, there is no need to be concerned that they will garnish your tax refund.
However, you should be aware that, depending on the state you live in, these collection agencies have other ways of obtaining payment from you. State laws commonly allow collection agencies to garnish your employment wages or levy your bank accounts.
So, once your tax refund is deposited into your bank account, a collection agency may be able to take those funds. For example, if you request that your tax refund be direct deposited into your bank account and a collection agency is able to levy that account, all of your available funds are subject to the levy, even if it includes your tax refund.
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