“2024 Tax Refund Surprise: How the IRS Handles Overpayments and Potential Impact on Your Unemployment” or “The Best Way to Prepare for Your 2024 Tax Refund: IRS Rules on Unemployment and Overpayments

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Written By kevin

A financial strategist with a knack for demystifying taxes and insurance, Kevin distills complex concepts into actionable advice.

“Can Unemployment Seize Your Tax Refund? Overpayment and the IRS in 2023” is a question that has been on the minds of many, especially in the wake of the economic turmoil caused by the global pandemic. As unemployment remains a pressing issue affecting millions of Americans, it’s crucial to understand how overpayments from unemployment benefits can affect their taxes. The Internal Revenue Service (IRS) is increasing scrutiny on individuals who owe overpayments, which may cause many to wonder whether their tax refund is at risk.

Can Unemployment Seize Your Tax Refund? Overpayment and the IRS in 2023

Understanding Overpayments

If you were disbursed more than the benefits owed by your state’s jobless benefit program or if there was a mistake made in processing your claim, then you have received an ‘overpayment.’ Most states will require that you pay back these funds. While it might seem like just another bill to pay with no real consequences, receiving an overpayment also carries potential legal ramifications. States are required by law to report all participants who receive uncleared overpayments from any public trust fund, including the Unemployment Insurance Trust Fund.

The Impact of Overpayments on Tax Refunds

If you received an overpayment during a previous taxation year and outstanding balances remain after December 31st, all or a portion of your federal income tax refunds can be diverted toward repayment without warning. Furthermore, interest may accrue on unpaid balances while penalties could be assessed for late payments. However, a provision included within the American Rescue Plan Act signed into effect in March 2021 temporarily suspends actions against taxpayers’ refunds towards paying off such debts until September 6th. The changes only apply through September 6th though, so individuals should still address any due payments as soon as possible upon receipt since the extension of deadlines remains unclear.

Tips For Avoiding Tax Penalties

To avoid any potential tax penalties, follow these tips:

  • Check your unemployment benefits and make sure you understand how they work.
  • Keep track of overpayments and repay them as soon as possible or seek legal guidance for assistance.
  • Consider asking for an installment agreement if you cannot pay all of it back immediately.
  • Make sure that all tax returns are filed on time to prevent late filing fees.

The Treasury Offset Program (TOP)

The Department of Treasury’s Bureau of the Fiscal Service (BFS) issues IRS tax refunds and Congress authorizes BFS to conduct the Treasury Offset Program (TOP). Through the TOP program, BFS may reduce your refund (overpayment) and offset it to pay:

  • Past-due child support;
  • Federal agency nontax debts;
  • State income tax obligations; or
  • Certain unemployment compensation debts owed to a state (generally, these are debts for (1) compensation paid due to fraud, or (2) contributions owing to a state fund that weren’t paid).

Injured Spouse Claim

If you filed a joint return and you’re not responsible for the debt that is subject to offset because it is owed by your spouse, you’re entitled to request your portion of the refund back from the IRS. You may file a claim for this amount by filing Form 8379, Injured Spouse Allocation.


Receiving an overpayment through unemployment can cause a lot of confusion and anxiety about whether your taxes are at risk. Remember that under certain circumstances the IRS may use your federal income tax refunds to offset past due amounts owed from uncleared payments received during previous taxation seasons. It is always best to address any issues related to overpayments and other debts sooner rather than later so that they don’t become costly problems down the line.


**Q: What happens if the IRS determines I received an overpayment of unemployment benefits, and how could this affect my tax refund in 2024?**
Answer: If you received an overpayment of unemployment benefits, the IRS might require you to pay back the excess amount when filing your federal tax return in 2024. This could potentially reduce or even eliminate your tax refund, as the funds would be used to repay the debt.

**Q: How does the IRS handle tax refunds for individuals who have received unemployment benefits? What are the potential implications in the context of tax overpayments?**
Answer: The IRS considers unemployment benefits to be taxable income in most cases. This means that these benefits are subject to federal income tax and potentially self-employment tax if certain threshold limits are met. Individuals who received unemployment benefits and also had overpayments might face adjustments to their tax refunds or even payback requirements, depending on the specific circumstances.

**Q: Can unemployment recipients take steps to minimize the risk of IRS overpayment debts affecting their 2024 tax refund? What actions should they take to prepare?**
Answer: To minimize the likelihood of overpayment debts impacting their 2024 tax refund, individuals receiving unemployment benefits should keep accurate records of their total income and unemployment benefits throughout the year. Regularly checking their earnings statements and reporting any errors or discrepancies to their state’s unemployment office and the IRS can help avoid potential issues and reduce the need for manual adjustments come tax time. Additionally, considering the possibility of adjustments to taxable income and tax liabilities might encourage earlier payment of any discrepancies or overpayments, resulting in a smoother and more straightforward tax refund process

Categories Tax