Outstanding Liabilities and Refund Offsets

Outstanding Liabilities

Taxpayers who receive a letter from the Arizona Department of Revenue (ADOR), informing them that some or all of their refund was adjusted to pay outstanding liabilities with the Internal Revenue Service (IRS), courts, state agencies or government municipalities, should note that, by law, we must offset any refunds or overpayments to certain authorized agencies that have a claim against them.

 

Tax Refund Offsets

Your tax return may show you are owed a refund from ADOR; however, if a taxpayer and/or spouse owe money to ADOR or another agency, the amount may be deducted from an expected refund. ADOR offsets (takes) some or all your tax refund to pay debts and notifies you when this occurs.

Taxpayers who receive a letter from ADOR, informing them that some or all of their refund was adjusted to pay outstanding liabilities with the Internal Revenue Service (IRS), courts, state agencies or government municipalities, should note that, by law, we must offset any refunds or overpayments to certain authorized agencies that have a claim against them.

 

Debt Offset Program

Debt Set Off program is a State liability setoff program by which refunds may be used to satisfy debts that the taxpayer owes to the State of Arizona, a political subdivision, or a court.

  • If a taxpayer is due a refund from Arizona but has a tax liability to ADOR, we use the refund to offset ADOR debt before other State liabilities.

  • After ADOR, other types of debt that can be paid through the refund include, but are not limited to;

    • IRS
    • child support
    • state and municipality fees or bills such as water or waste,
    • state/city courts fines or judgements, etc.

Offsets to non-tax debts occur after ADOR has certified the refunds and before making direct deposits or issuing paper checks.

Refund offsets reduce the amount of the expected direct deposit or paper check and will delay the issuance of the remaining refund (if any) after offset. Taxpayers who owe non-tax debts may contact the agency they owe prior to filing their returns to determine if their debts were submitted for refund offset. ADOR cannot determine, prior to the filing of a return, whether refunds will be offset for non-tax debts.

ADOR sends taxpayers offset notices if any part of their refund is applied to non-tax debts. Taxpayers should contact the agencies identified on the offset notice when offsets occur and they wish to dispute the non-tax debts, or have questions about the offsets.

(A.R.S. 42-1118 and 43-1072)

 

How the Process Works

  1. ADOR sends taxpayers an offset notice to the last known address if any part of their refund is applied to non-tax debts. Taxpayers should contact the agency identified on the notice when the offset occurs if they wish to dispute the non-tax debt, or have questions about the offset.
  2. If the agency determines they are offsetting the refund, the amount will be taken from the ADOR tax refund and the remaining funds will be delivered through a paper check or direct deposit.

Refund offsets will delay the issuance of the remaining refund (if any) after offset.

 

Payment Installment Plan

ADOR may offset any state or federal refunds due to you while you are on a payment plan.

Refund offsets are not a substitute for scheduled monthly payments, which remain due each month until your liability balance is paid in full.

Applying your refund to your unpaid balance may:

  • lower your balance due,
  • shorten the term of your payment installment agreement,
  • lower the amount of your final payment, or
  • pay your balance in full.

 

Your Rights

Those individuals who receive notice can contact the agency listed on the ADOR Offset letter if they have any questions about the claim or offset. If a tax refund has been withheld in error by a court or agency, a taxpayer has 30 days from the date of the letter to file an appeal with the court or agency claiming the refund. The taxpayer will be entitled to the full refund, plus interest and penalties, per Arizona Revised Statute § 42-1122.

 

Treasury Offset Program (TOP)

A program where ADOR and the IRS share information on the debts of a taxpayer with one another so that any refunded tax money may be offset or rerouted to pay a taxpayer's debts first and then the taxpayer, if money remains.

Once a claim is submitted to the IRS, it remains there until paid in full. If the offset is not covered fully by the refund, it will continue the following year until the balance is fully paid.

If a part or all of your IRS refund was offset by ADOR, a taxpayer must allow 6-8 weeks from the letter for processing.

 

For more information, see the IRS website.

 

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