Stopping Federal Tax Intercept & Keeping Your Tax Refund

Federal Tax Intercept occurs when the Internal Revenue Service takes (intercepts) a tax refund you think you are getting in order to pay off government debt.  Federal Student Loans are one such qualifying government debt that can lead to a tax intercept. Often, the IRS will not notify you in advance of the intent to have your tax refund intercepted. You typically find out the hard way when you realize you did not receive your tax refund. Most often, you have received several notices from collection agencies or loan servicers well in advance which may include a warning that a tax intercept is possible.

How Do I Stop A Federal Tax Intercept?

Stopping a Federal Tax Intercept is not easy, but it can be done. The first thing is to get ahead of it by taking action before filing your tax returns. Most often, it requires preparation of several documents, which can be confusing. A trained Student Loan Lawyer like Benjamin Brand can create a strategy with you, prepare and file the necessary documents. Consolidating loans, performing rehabilitation or changing your current arrangement to an Income Driven Repayment plan before things get bad can help to avoid or resolve the default before the federal tax intercept scenario can occur. Some variables that come into consideration when preparing a strategy include:

  • Marital Status
  • Child Support and Alimony
  • Income type and source

Does My Spouse Lose Tax Refunds as Well?

Not necessarily. It depends on the filing status with your spouse. If you file jointly, your spouse has generated enough income that part of the tax refund is theirs and you incur a Federal Tax Intercept, your spouse does have an option.  Your spouse can file the Injured Spouse form with the Internal Revenue Service and receive a refund in a proportional amount your tax return justifies as their portion of the refund.  This is somewhat discretionary on the part of the IRS as it does not have to agree with the amount you feel your spouse is due. However, the IRS is most likely to go with the refund amounts calculated directly from the tax return. If you do not file joint tax returns, your spouse will most likely not have their tax refund intercepted due to your federal student loan default.

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