Beware the TOP

Apr 25, 2014 by

Uncle Sam I Want You!

I Want YOU!

Many Americans eagerly anticipating a fat tax refund are about to get a big surprise: just as the government giveth, the government taketh away.

The U.S. federal government’s done nothing to impede high-frequency traders who have been robbing investors of billions for years. But if you’re behind on a student loan because, say, you irresponsibly graduated into the financial meltdown, then spent a few years waiting tables and only recently gained employment actually related to your costly education, and are now working to recover and catch up on overdue debt, the feds are ready to pounce on you.

Treasury Offset Program

Let’s say you finally found work in late 2012 and had too much withheld from your pay during 2013, so your 1040’s bottom line worked out to be a juicy refund. Maybe you’re planning to use that refund to jump start a sorely needed emergency fund so you can sleep a little better at night. You might want to stock up on melatonin instead because Uncle Sam’s minions may commandeer your tax refund.

The U.S. Treasury Department’s Bureau of Fiscal Service runs the innocuously named Treasury Offset Program (TOP). And exactly what are TOP’s bureaucrats offsetting? This: past due debts you owe to federal agencies or the states against any money—like a tax refund—that the Treasury owes you. More specifically, from the Bureau of Fiscal Service’s website:

Fiscal Service disburses federal payments, such as federal tax refunds, for agencies making federal payments (known as “payment agencies”), such as the Internal Revenue Service. “Creditor agencies,” such as the Department of Education, submit delinquent debts to the Fiscal Service for collection and inclusion in TOP and certify that such debts qualify for collection by offset (the reduction or withholding of a payment).

Before an eligible federal payment is disbursed to a payee, disbursing officials compare the payment information with debtor information, which has been supplied by the creditor agency, in Fiscal Service’s delinquent debtor database. If the payee’s name and TIN match the name and TIN of a debtor, the disbursing official offsets (withholds) the payment, in whole or in part, to satisfy the debt, to the extent legally allowed.

Translation from government-ese to standard English: if you’re behind on a federal student loan, bye bye tax refund.

Delinquent Child Support Offset Too

If you’re behind on child support payments, you may be dinged by TOP too. The Debt Collection Improvement Act of 1996 authorized the Secretary of the Treasury to collect past-due child support by the administrative offset of federal payments.

Other debts that can be collected through TOP include:

  • Supplemental Nutrition Assistance Program (SNAP)
 States submit delinquent nutrition assistance obligations to the U.S. Department of Agriculture, Food and Nutrition Service (FNS), which in turn submits the debts to TOP for collection through the offset of federal tax refunds and other eligible payments. In fiscal year 2013, TOP recovered $119.1 million in delinquent SNAP debts.
  • State Income Tax Program (SIT)
 TOP offsets federal tax refund payments to payees who owe delinquent state income tax obligations. In fiscal year 2013, TOP recovered $605.1 million in state income tax debts.
  • State Reciprocal Program (SRP)
 TOP offsets federal vendor and other non-tax payments to payees who owe delinquent debts to state agencies. In return, states offset payments to payees who owe delinquent debts to federal agencies. In fiscal year 2013, TOP recovered $37.9 million in delinquent debts for seven states and the District of Columbia that participate in SRP. In return, the states recovered $30.8 million for the federal government.
  • Unemployment Insurance Compensation Program (UIC)
 TOP offsets federal tax refund payments to payees who owe delinquent unemployment insurance compensation debts due to fraud or a person’s failure to report earnings. In fiscal year 2013, TOP recovered $326.2 million for thirty-seven states and the District of Columbia that participate in UIC.

TOP Can Offset More Than Tax Refunds

The Treasury Offset Program has access to many more payments to taxpayers than just tax refunds. For example, TOP has the authority to offset debts against these federal payments:

  • Tax refunds
  • Wages, including military pay
  • Retirement, including military retirement pay
  • Contractor/vendor payments
  • Travel advances and reimbursements
  • Certain federal benefit payments, including Social Security benefits (other than Supplemental Security Income), Railroad Retirement benefits (other than tier 2), and Black Lung (part B benefits)

What Can You Do If Your Tax Refund is Offset?

If you owe any of the debts outlined above and your tax refund is eliminated or cut, suck it up, bub. But if you believe you’re being screwed by TOP, I could find nothing related to an appeals process on TOP’s website other than a customer service number: 800-304-3107. Failing that, I guess your only recourse is to contact your Congressperson. Good luck with that.

TOP Rubs Me the Wrong Way

I can clearly understand how it would be annoying as a taxpayer to see my neighbor use a fat tax refund to add a few more inches to his flat screen while ignoring past due notices on his taxpayer subsidized student loan or child support payments.

On the other hand, everyone’s case is unique, and people get behind on obligations for all sorts of reasons, not all of them within their control. Unless there’s a genuine appeal process where specific circumstances can be considered, blindly confiscating tax refunds could easily be counterproductive and tantamount to the taxpayer shooting him or herself in the foot.

The other thing I’m troubled by is that the government seems to focus 99% of its enforcement and punitive resources on the little guy’s relatively trivial transgressions while largely ignoring fiscally massive crimes and other shenanigans by the big guy. Why is that? Do you suppose it could have anything to do with how election campaigns are financed? Gee, I wonder…

What to do you think?

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  • harold

    Hear, hear!!!!!

  • Hmmm… Interesting, I had never heard of this. I wonder how well the money that is collected by TOP gets put to use in the correct application. For example you cited student loans. If it truly did take money out of your tax return for this purpose, would it put that money towards your student loan payment? Or would if you were behind on child support, would the money they ding you for really get to the parent that should have received the child support payment?
    I understand that everyone’s circumstances are different so ideally it should be judged on a case by case basis but that’s obviously impossible since the resources just don’t exist for that. But I remember having a bunch of “temp” jobs during summers when I was in high school and I remember other “temp” workers bragging about abusing the system. One in particular stood out to me, I remember a guy talking about how he didn’t have to make child support payments if he didn’t have a bank account. He would get all of his paychecks and just cash them directly at the bank that issued them so his “baby momma” didn’t get anything.
    While perhaps you might be right not to like this because of situations like student loans, I believe that this should be perfectly reasonable for things like child support. Kids shouldn’t suffer from the power struggle that parents might be having. My sister is going through a situation like this where her ex-husband hasn’t given her any child support for their 2 kids, even though the kids live with her full time because he simply refuses to want to take them for more than a few hours at a time.
    I would be really interested in knowing how the money that is taken though TOP does get distributed though.

    • Thanks for the story and your thoughtful comment.

      My level of empathy with people who become delinquent on child support would be similar to yours. However, I do think that too much policy–which then applies to everybody–is rooted in anecdotes that capture extreme, and often rare, examples of egregious behavior on which the media love to fixate rather than a rational analysis of evidence. But that’s how politicians operate, unfortunately.

      You raise a good question about how funds ‘confiscated’ by TOP are used. I’d like to think that if my tax refund were withheld because I’m past due on a student loan that my tax refund would be applied to the loan balance. But I don’t now if that’s the case. I’ll ask though!

  • MoneySmartGuides

    I recently heard a story of a woman’s tax refund being taken away because her now deceased mother was issued too much money in Social Security benefits. Apparently, the government can now come after those related to others that have received too much in benefits.

    We are definitely entering a slippery slope here with how the government is starting to act. I’m not a conspiracy theorist by any means but over time, little things can add up to be very big things.

    • As I mentioned in the post, what bugs me is the continual focus on the little guy. Why not focus resources on crimes and transgressions by the big guy, where the amount of money at stake is far, far more?

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