What is the Difference Between an IRS Levy and an IRS Offset of a Refund?

Date: July 18, 2022

The IRS has the ability to both levy and offset a taxpayer’s refund, but many taxpayers may not
know the difference between the two.
An IRS levy refers to the ability of the IRS to legally seize a taxpayer’s property to satisfy their
tax debt. Through the State Income Tax Levy Program, the IRS can levy, or take, a taxpayer’s
state tax refund in order to pay towards their existing federal tax liability. This only applies to
individual state tax refunds, but in the future the program may be expanded to include business
state tax refunds as well. If your state tax refund is levied, the state will issue a notice advising
you of the levy and the IRS will also issue a notice, after the levy, offering you the opportunity
to appeal.
While the IRS may levy a taxpayer’s state refund, they can also offset the taxpayer’s federal
refund. A taxpayer’s federal refund may be offset to pay toward a federal tax debt from a prior
year, another debt to a federal agency, or other debts under state law. However, the IRS only
handles offsets for federal tax debts and all other offsets go through the Treasury Department’s
Bureau of Fiscal Services. If your federal tax refund is offset, you will get a notice from either
the IRS or BFS, depending on what the offset is going toward.
If you receive a levy or offset notice and wish to seek legal assistance, you can reach out to the
Low Income Taxpayer Clinic by calling (812)-339-7668.

For more information on IRS levies, visit here: https://www.irs.gov/businesses/small-businesses-self-employed/levy
For more information on IRS refund offsets, visit here:
https://www.taxpayeradvocate.irs.gov/get-help/refunds/refund-offsets/
For more information on reduced refunds generally, visit here:
https://www.irs.gov/taxtopics/tc203

Megan Burtis,
Low Income Taxpayer Clinic Law Clerk