Creditors may garnish you to collect a debt you owe. Garnishment is a court process that lets a creditor collect money by getting it from a garnishee. One way to do this is by garnishing your tax refund. Read the article An Overview of Garnishments to learn about garnishments generally.
Michigan State Tax Refund Garnishments
Your Michigan state tax refund can only be garnished through the Michigan Department of Treasury. Both private creditors and public state agencies may garnish your state tax refund.
Garnishment of State Tax Refund by State Agencies
If you owe past income taxes or money to a state agency, the Department can take all or part of your income tax refund to pay the debt. If this happens, you will get a Notice of Adjustment to Income Tax Refund. It has detailed information about the refund. If there is any money left in your refund after that debt is paid, you will get it.
You will not get a notice that your refund is being held to pay a debt to the state until you file your state income tax return.
Garnishment of State Tax Refund by Other Creditors
If a creditor has a judgment against you and wants to garnish your tax refund, it must file a Request and Writ for Garnishment with the court. Then the creditor must file the writ with the Department of Treasury. The creditor must also serve a copy of the writ on you. This means it will mail a copy of the Garnishee Disclosure and a copy of the writ to your last known address or serve you in person.
If you don’t think you should be garnished, you can file an objection with the court within 14 days of getting the writ. If you do not object, money will be taken out of your refund. Read the article Objecting to Garnishments to learn when and how you can object to a garnishment.
Order of Payments
If the Department of Treasury gets more than one writ of garnishment against you, it will pay any taxes you owe first. Then it will pay any other debts owed to the state or state agencies. After that, any other debts are paid in the order the Department gets the writs. The Department considers child support and overpayments due to unemployment or workers’ compensation other debts, not debts to the state.
If you are married and filing a joint tax return, you might be able to protect part of your refund from garnishment under the “Non-Obligated Spouse” rule.
If your refund will be garnished, the Department of Treasury will send you a form called “Income Allocation for Non-obligated Spouse Form 743” after it gets your tax return. You must fill it out the form and return it to the state within 30 days. When the state gets your form, it will divide the refund between you and your spouse, and apply each spouse’s portion of the return to that person’s debt.
Offsets of Federal Income Tax Refunds
Private creditors can’t garnish your federal tax refund. Your refund can be reduced by an “offset.” Your federal tax refund will be offset if you owe federal or state income taxes from past years. Your federal tax refund may be offset to pay for child support or a past due federal student loan.
If there is an offset on your refund, the IRS will send you notice of it. If you disagree with the debt or the amount, contact the creditor. The creditor’s information will be on the notice.
If you are married filing a joint return and only one of you owes the debt, you can ask that part of your refund not be offset. For example, if you are married and you owe child support from a past relationship, your spouse is not responsible for it. Your spouse can ask to get his or her part of the tax return.
To request a portion of your refund not be offset, file IRS Form 8379, Injured Spouse Allocation. You can file it with your tax return, or you can send it in separately. If you file it with your return, write “INJURED SPOUSE” at the top left corner of your 1040 form. If you file it separately, list your social security numbers on Form 8379 in the same order they are on your 1040 form.
You can find the IRS guidelines to offsets and a link to Form 8379 on the IRS website.