Did you know that past due financial obligations can affect your current federal tax refund? The Department of Treasury’s Financial Management Service (FMS), which issues IRS tax refunds, can use part or all of your federal tax refund to satisfy certain unpaid debts.

Here are the facts about how your tax refund may be used to offset certain types of debts:

1. If you owe federal or state income taxes, your refund will be offset to pay those taxes. If you had other debt such as student loan debt or child support debt, the FMS will apply as much of your refund as is needed to pay off the debt and then issue any remaining refund to you. This won’t be a surprise to you, because you will receive a notice if an offset occurs. The notice will include the original refund amount, your offset amount, the agency receiving the payment and its contact information.

2. Contact the agency shown on the notice, not the IRS, if you believe you do not owe the debt or you are disputing the amount taken from your refund.

3. You’ll need to file IRS Form 8379, Injured Spouse Allocation, if you filed a joint return and you’re not responsible for the debt but you are entitled to a portion of the refund. You’ll need to attach Form 8379 to your original Form 1040, Form 1040A, or Form 1040EZ or file it by itself after you are notified of an offset. Form 8379 can be downloaded from the IRS website at www.irs.gov.  You can file Form 8379 electronically. If you file a paper tax return you can include Form 8379 with your return, write “INJURED SPOUSE” at the top left of the Form 1040, 1040A or 1040EZ. IRS will process your allocation request before an offset occurs.

4. If you are filing Form 8379 by itself, it must show both spouses’ Social Security numbers in the same order as they appeared on your income tax return. You, the “injured” spouse, must sign the form. Do not attach the previously filed Form 1040 to the Form 8379. Send Form 8379 to the IRS Service Center where you filed your original return.

5. The IRS will compute the injured spouse’s share of the joint return. Contact the IRS only if your original refund amount shown on the FMS offset notice differs from the refund amount shown on your tax return.

6. Follow the instructions on Form 8379 carefully and be sure to attach the required forms to avoid delays. If you don’t receive a notice, contact the Financial Management Service at 800-304-3107, Monday through Friday from 7:30 a.m. to 5 p.m. (Central Time).

How To Use Your Federal Tax Refund To Buy Savings Bonds

Your Federal Tax Refund is a clear indication that you were able to manage your personal finances without the need for those funds.

There are many ways that you can best use those funds during the year and also when you get Your Federal Tax Refund.

Buying Savings Bonds with Your Federal Tax Refund is an option that you can consider.

IRS Tax Tip 2011-22,  February 01, 2011

You can buy Series I U.S. Savings Bonds with a portion or all of your federal tax refund for yourself or anyone. Series I bonds are low-risk bonds that grow in value for up to 30 years. While you own them they earn interest and protect you from inflation.

Here are six things the IRS wants you to know about using your federal refund to purchase savings bonds.

1. You may use a portion of your refund to purchase up to $5,000 in U.S. Series I Savings Bonds for yourself or anyone.
2. The total amount of saving bonds purchased must be in multiples of $50. Any portion of your refund not used to buy savings bonds will be deposited into another financial account – such as a checking or savings account or can be mailed to you as a paper check.
3. Paper bonds will be issued in your name or the name you designate as primary owner, co-owner or beneficiary. If you are married and filed a joint return, the bonds will be issued in yours and your spouse’s name. You can also designate a beneficiary or co-owner under this name registration option.
4. You will receive the U.S. savings bonds in the mail.
5. Buying bonds with your refund is easy. Just select this option by filing Form 8888, Allocation of Refund (Including Savings Bond Purchases).
6. Form 8888 has step-by-step instructions on how to select this option and how to specify the amount of your refund you want to use to purchase savings bonds.