Refunds May Be Used to Pay Debt

Instruction Year

The State of Iowa may take refunds to pay certain debts. This process is called offsetting refunds.

Debts that may be offset include:

  • taxes owed to the State of Iowa
  • taxes owed to the Internal Revenue Service
  • unpaid child support
  • overpayment of unemployment benefits
  • fines owed to counties
  • unpaid college aid loans
  • food assistance / Supplemental Nutrition Assistance Program (SNAP) or other food assistance overpayment
  • Family Investment Program (FIP) overpayment
  • any other debt owed to a state or municipal agency

Letter Sent to Taxpayer

When a refund is kept by the state to pay debt, a letter is sent to the taxpayer by the agency offsetting the money. For example, when a refund from an individual income tax return is used to pay back child support, the Department of Human Services will send a letter to the taxpayer.

More Than One Debt

A refund or payment may be taken to pay more than one debt; for instance, if a taxpayer has college aid loan debt and also has an unpaid county fine. Each offsetting agency has up to 45 days to process their offset.

Remaining Refund

If an entire refund or payment is not needed to pay the debt, the remainder will be sent to the taxpayer. If direct deposit was requested, the remainder will be refunded by direct deposit.

Relief from Joint and Several Liability

If you file a joint return, and there is an amount due, both you and your spouse are totally and equally liable for the entire debt. If you have an outstanding liability, jointly or individually, and you file a return and are due a refund, regardless if there is an existing arrangement on the account by either party, these funds are still subject to being offset. However, there is a process to follow if you believe your spouse (or former spouse) is responsible for the debt in question.

Iowa follows the federal IRS determination for relief from joint and several liability. If you desire relief from joint and several liability you should do one of the following

  • File IRS form 8857 as soon as you become aware of a tax liability for which you believe only your spouse or former spouse should be held responsible. If relief is granted, you will be asked to provide your IRS final determination letter to request relief from your Iowa tax debt.
  • If you filed IRS form 8857 but did not receive a final determination letter or other document issued by the IRS you must provide the Department with other evidence to support the position that you are eligible for relief under Iowa Code section 422.21(7)
  • If you did not apply for federal relief you must submit a written statement to the Department detailing the reason for not applying for relief under IRC section 6015 as well as evidence to support the position that you are eligible for relief under Iowa Code section 422.21(7)

By requesting relief from joint and several liability, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return. Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse). However, you are jointly and individually responsible for any tax, interest, and penalties that do not qualify for relief.