Waiting for your tax refund is an anxious time. You’ve filed your taxes, gotten confirmation that your return has been received, and now you’re just waiting on the money to hit your bank account. But what if after getting notice that your refund has been approved, the IRS takes some or all of that money back? Is that legal? Here’s what you need to know.
The short answer
Yes, it is legal for the IRS to take back all or part of your refund, even after you’ve been notified that your return was accepted and your refund was approved. This can happen if the IRS determines there was an error in processing your return, they believe you owe back taxes or other debts like child support or student loans, or if your refund is seized due to issues like bankruptcy or government agency debt collection.
When can the IRS take your refund after approval?
There are a few key situations when the IRS may take back your refund after approving it:
- Processing error – If the IRS made a mistake in processing your return, resulting in a larger refund than you should have received, they can reverse the refund.
- Back taxes owed – If you have outstanding debt to the IRS from previous years, they can seize your current refund to pay toward that balance.
- Other federal/state debts – Your refund can be taken if you owe child support, student loans, or other debts to federal or state agencies.
- Bankruptcy – If you have declared bankruptcy, your refund could be seized by trustees or creditors.
- IRS audits – If you’re audited after filing, the IRS can hold your refund until the audit is complete.
- Tax-related identity theft – If someone files a fraudulent return in your name, the IRS may delay your refund during investigation.
The IRS will notify you if your refund is taken
If the IRS reverses your refund, they are required to notify you via mail. The notice should explain why it was reversed and what action you may need to take. This allows you to respond if you disagree with their reversal or provide additional information if needed. If you don’t receive a notice, you can contact the IRS directly to inquire about the status of your refund.
You may be able to appeal a refund reversal
If you disagree with the IRS decision to take back your refund, you may have the right to appeal. For example, if your refund was seized due to debts you don’t believe you actually owe, you may be able to challenge that action. The appeal process and timeline to respond varies based on the situation. Your reversal notice from the IRS should include instructions for appealing.
How long can the IRS legally delay a refund?
The IRS typically issues most refunds within 21 days of a return being accepted. However, they can legally delay refunds for several reasons, including:
- Returns suspected of fraud – The IRS can hold refunds if they suspect identity theft or other fraud. There is no limit on refund holds for this reason.
- Incomplete returns – If you’re missing forms or information, the IRS can delay refunds until you provide what’s needed.
- IRS errors – If the IRS made an error that needs correction, it may cause refund delays.
- Outstanding federal/state debts – Refunds can be delayed until debts like back taxes or child support are settled.
- Taxpayer Protection Program – Random refunds are held for review to detect potential fraud.
Most non-fraud related refund delays should be resolved within 6-8 weeks. You’ll receive an IRS notice explaining any refund holdups.
When will the IRS actually take your refund money?
In most cases, the IRS will not withdraw money that has already been deposited into your bank account. If they determine your refund needs to be reversed after the fact, they will send a notice demanding repayment rather than pulling the funds back directly. However, there are some exceptions:
- Direct deposit reversals – In rare cases, the IRS can recall a direct deposit up to 3 days later.
- IRS levies – If you have outstanding tax debt, the IRS can levy your bank account or wages.
- Treasury offsets – Other federal or state debts may trigger a treasury offset to seize your refund.
So in most situations, the reversal won’t take money out of your account instantly unless it is within a few days of direct deposit or there is a formal levy or offset placed to collect debts you owe.
Can you cash or spend a refund before approval?
While you may get your tax refund quickly, it’s not considered final until the IRS has finished processing your return. Even if you receive the direct deposit funds or a paper check, that does not mean your refund has been approved. As a result, you should not spend your refund money until your return has finished processing – which can take several weeks. Spending refund money early can result in owing the IRS money back if they reverse all or part of your refund later.
How do you check your refund status?
After filing your taxes, you can check the status of your tax refund using the IRS2Go app or by visiting www.irs.gov. You’ll need to provide details like your Social Security Number, filing status, and exact refund amount. The online tools can show your return status, tell you when your refund was approved, and notify you if your refund is delayed or offset for any reason. Monitoring online can help you quickly identify any refund issues.
Can you cash a refund check right away?
You can cash or deposit a refund check as soon as you receive it. However, that does not necessarily mean the refund is finalized or guaranteed. The bank will make the funds available quickly, but the IRS could still reverse the refund later on, potentially leaving you on the hook to pay that money back. To be safe, you may want to wait at least 2-3 weeks after getting your refund check to ensure the IRS payment goes through without issue.
Does a refund transfer protect you from reversals?
Some tax preparers and services offer refund transfer loans or advances. This provides you with the refund money quickly, often within 24-48 hours rather than waiting the standard 2-3 weeks. However, a refund transfer does not protect you if the IRS later reverses your refund. Even if you received the money already, you will still owe that amount back to the IRS if they determine your refund was too high or should not have been issued for other reasons. You are responsible for repaying any errors regardless of receiving a refund advance.
What triggers an IRS notice about your refund?
If you receive an IRS notice about your tax refund, it typically means there is some issue that needs to be resolved. Some common triggers for refund-related IRS notices include:
- Math errors on your return – This could alter the size of your refund.
- Incomplete information – Missing forms like W2s or 1099s can delay processing.
- Identity theft – The IRS may suspect fraud if a return doesn’t match your past filings.
- Unreported income – If you fail to report income like dividends or freelance work.
- Previous tax debt – If you owe back taxes from prior tax years.
- Offsets to other federal/state debts – Things like student loans or child support.
Any notice should provide details on the issue and steps you may need to take to resolve it. You typically have 30 days to respond before the IRS finalizes the refund adjustments.
How can you avoid IRS refund problems?
While you have no control if the IRS makes a processing error, there are things you can do to help avoid refund delays or reversals:
- File your return accurately and include all required forms/information.
- Double check for errors in your calculations.
- Make sure your personal details match your past tax returns.
- Pay any back taxes or other debts owed to federal/state agencies.
- Respond promptly to any IRS notices about your refund.
Carefully following the tax rules and filing complete, error-free returns is the best way to prevent refund issues.
Can the IRS take your refund for your spouse’s debts?
If you file a joint tax return with your spouse, the IRS can seize your joint refund to pay toward qualifying debts owed by either spouse. These debts may include:
- Back taxes from prior joint returns
- Federal student loans owed by either spouse
- Overdue child or spousal support
- Other government debts owed by either spouse
The IRS does not need the consent of both spouses to offset joint refunds for these qualifying debts. One spouse’s obligation is enough for them to take the full refund amount. However, some community property states require consent of both spouses before joint refunds can pay one spouse’s separate tax debt from before marriage.
Avoiding joint refund seizures
If you want to avoid having your share of the refund seized due to your spouse’s obligations, you may want to consider filing separate married returns. This prevents either spouse’s debts from impacting the other’s refund. However, it also prevents claiming certain credits and deductions, potentially costing you more overall. For community property states, filing separately may better protect each individual refund from the other’s debts.
Can the IRS take your refund for credit card debt?
The IRS cannot take your tax refund to pay normal personal credit card debt or bills from private companies. However, they can seize your refund if you owe certain qualifying federal or state debts including:
- Past due taxes
- Overdue child support
- Delinquent student loans
- Other debts owed to federal or state agencies
So the IRS will not offset your refund for unpaid credit card balances, utility bills, etc. But tax debt and certain other federal obligations enable them to collect directly from your refund.
When credit card debt allows an IRS offset
In limited cases, credit card debt enables IRS refund seizure. If a credit card company gets a court judgment against you for unpaid debt, they can request a tax refund levy to recover the money owed. And past due fees/fines owed to federal or state courts for things like traffic violations may also qualify to offset refunds for collection.
Can the IRS seize your refund for medical bills?
No, the IRS cannot legally take your tax refund to pay medical bills you owe to hospitals, doctors, or other healthcare providers. Medical debt is not one of the allowed categories for the IRS to offset refunds directly. The IRS can only seize refunds to pay qualifying federal or state debts like:
- Past due taxes
- Child support arrears
- Overdue student loans
- Other debts owed to government agencies
Medical bills from private healthcare organizations do not fall under IRS authority to offset refunds. However, if a medical provider gets a court judgement against you and requests a tax refund levy, then your refund could be at risk.
When medical debt allows an IRS refund seizure
If a hospital or doctor sues you for unpaid medical bills and wins a judgement, they can seek an IRS levy against your tax refunds or wages to recover the funds. Court judgments for medical debt qualify for tax levies just like other unpaid personal lawsuits. So while medical bills alone don’t allow IRS seizure, a legal judgement related to those medical debts may enable it.
Next steps if the IRS takes your refund
If you receive notice that the IRS has reversed or reduced your tax refund, here are some steps to consider:
- Review the notice details carefully – Make sure you understand why your refund changed.
- Verify the accuracy – If you disagree with the IRS decision, gather supporting documents.
- Contact the IRS to appeal – You typically have 30 days to dispute the action.
- Request penalty abatement – If penalties were applied unfairly, seek removal.
- Negotiate a payment plan – For repaying any tax debts over time.
- Seek tax help as needed – From a CPA or tax attorney regarding complex cases.
Responding quickly is important whenever the IRS reverses or reduces your expected refund. Reach out for professional assistance if the issue seems complicated or unclear. Be proactive about resolving refund problems or appealing unjustified IRS actions against your return.
The bottom line
The IRS does have the power to reverse your tax refund even after informing you that it was accepted and approved. Typical reasons for taking back refund money include IRS errors in processing, outstanding tax debts, offsets to other federal obligations you may owe, or suspected tax fraud. If the IRS pulls back your refund, you will receive a notice detailing the changes. At that point you can address the issues they identified or submit an appeal if you disagree with their actions. Promptly communicating with the IRS can help resolve refund discrepancies and delays in a timely manner.