What Is Treasury Offset
When an EIDL loan goes into default and is referred to the Treasury Department, the Treasury Offset Program (TOP) can intercept your federal tax refunds, Social Security payments (up to 15%), and other federal payments to apply toward the debt. This happens automatically once the debt is referred -- you may not receive advance warning.
How Referral Works
The SBA refers defaulted loans to the Treasury after 120+ days of delinquency and failed collection attempts. Once referred, the Treasury sends a notice to your last known address. You have 60 days to dispute the debt, request a review, or enter a repayment agreement before offset begins. Do not ignore the Treasury notice -- it is your last chance to act before offsets start.
Protecting Your Tax Refund
If you are married and file jointly, the non-liable spouse can file an injured spouse claim (IRS Form 8379) to protect their portion of the refund. Adjust your withholding so you do not have a large refund to offset -- increase allowances so you receive more in each paycheck. Consider making estimated tax payments instead of over-withholding. These strategies legally minimize the offset impact.
Hardship Exemptions
You can request a financial hardship review if the offset would prevent you from meeting basic living expenses. Contact the SBA or Treasury's Bureau of the Fiscal Service. Social Security benefits can only be offset by 15%, and the first $750 per month is protected. SSI (Supplemental Security Income) cannot be offset at all.
Frequently Asked Questions
Can bankruptcy stop Treasury offset?
Filing bankruptcy triggers the automatic stay, which stops most collection activities including Treasury offset. However, the SBA debt may or may not be dischargeable depending on circumstances. Consult a bankruptcy attorney.
How long does Treasury offset last?
Until the debt is paid in full, settled through OIC, discharged in bankruptcy, or the statute of limitations expires. For SBA debts, the collection period can be very long.
Can they offset my spouse's Social Security?
Only if your spouse is also liable on the EIDL loan (co-signer or guarantor). If the loan is solely in your name, your spouse's benefits cannot be offset.
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