With the 2025 tax season coming to a close, many taxpayers may be expecting to receive a refund soon. However, it is important not to get your hopes up too early. Not only are you not necessarily automatically entitled to a refund, but the IRS reserves the right to withhold your refund for a variety of reasons. Generally, refunds are processed fairly quickly after you have filed your taxes, but if there are problems associated with your debt liability, they will be withheld.
Why income tax refunds are processed by the IRS
Usually, a tax refund will occur after you have overpaid your tax liability to the federal government. This is why it is essential to file your taxes even if you are an employee whose tax liability gets deducted from your paycheck each month. By filing your taxes, you prove to the Internal Revenue Service (IRS) how much you actually paid them versus how much you actually owe based on your income.
Other forms of tax refunds include tax credits. A tax credit reduces the amount of tax liability that you owe the government. There are two types of tax credits:
-
Nonrefundable credits: These can reduce your tax to zero, but not beyond that. You won’t get any leftover credit as a refund.
-
Refundable credits: If the credit is more than what you owe in taxes, you can get the extra amount back as a refund. This is the case for the Earned Income Tax Credit (EITC).
Why the IRS may withhold your refund
While you may be entitled to a refund, there are a variety of reasons why a refund may be withheld from you. This can happen if you have paid your federal taxes, but still have state taxes that are left unpaid. Forty-one of the fifty US states require you to pay state income tax. If this is not paid, the IRS will withhold your refund.
Other reasons why your refund may be withheld are if you have defaulted on a federally issued student loan. Just over $1.6 trillion is owed to the federal government in student loans. If you have defaulted on your loan, your refund may be withheld for the government to recover the money that you owe them.
A third reason why your refunds may be withheld is if you owe spousal or child support. When a parent is behind on court-ordered child support payments, the state’s child support agency may ask the Treasury Department to deduct funds from the parent’s tax return to make up the difference. If you are also required to pay spousal support, your refund will also be withheld if you have not paid this.
What to do if your refund has been withheld
The first thing you should do is contact the U.S. Department of the Treasury’s Bureau of the Fiscal Service (BFS), as they are in charge of issuing refunds for the IRS. You can call them at the following number: BFS at 1-888-826-3127. The BFS can help guide you on what your options are, depending on why your refunds are being withheld, and can also help you to set up a payment plan, potentially.
While the deadline to pay and file your taxes has passed, if you received an extension from the IRS, you only need to file by October 15 of this year. Before you file, ensure you have all your debts paid, or you have contacted the IRS to make a plan to pay off your debt to avoid your refunds being withheld once you file later this year. Always make sure you communicate with the IRS if you anticipate problems regarding needing to pay off your debts and taxes.
