Understanding When and Why Your Tax Refund Was Taken by the Government

Few surprises are worse during tax season than opening your IRS transcript or bank app and realizing your expected refund has vanished—or been drastically reduced. The culprit is often the Treasury Offset Program (TOP), which allows the government to seize part or all of your tax refund to repay certain debts.

Two specific transcript codes—TC 706 and TC 898—confirm that your refund has been intercepted. If you see them, the refund didn’t disappear—it was redirected.

This guide explains exactly what these two codes mean, what debt types trigger them, and how to find out where your refund went.

What Is the Treasury Offset Program?

TOP is a federal collection system managed by the U.S. Treasury’s Bureau of the Fiscal Service. It takes your federal tax refund and redirects it toward debts such as:

• Past-due child support
• Defaulted student loans
• State income tax debts
• State unemployment overpayments
• Federal agency debts
• Court fines or restitution

The IRS does not control the decision—TOP does.

Your refund was not lost.
It was used to pay an outstanding liability.

TC 706 — Refund Offset for Federal Tax Debts

Transaction Code 706 indicates your refund was applied to an existing federal tax debt.

This means you owed the IRS themselves—not another agency.

Example scenarios:

• Outstanding prior-year tax balance
• Penalties or interest from earlier returns
• Corrected return adjustments
• Payment agreements in default
• Accumulated back-taxes

TC 706 means you are paying off tax debt owed directly to the IRS.

TC 898 — Treasury Offset Program (Non-Tax Federal or State)

Transaction Code 898 signals a non-tax offset. This means your refund went to another government entity.

Common destinations include:

• Child support collection agencies
• Department of Education (student loans)
• State tax departments
• State unemployment agencies
• Veterans Administration
• Small Business Administration
• Court-ordered restitution agencies
• Housing and Urban Development (HUD) claims

If you see TC 898, the IRS gave your refund to someone else—but not for taxes you owed to them.

How to Know Where Your Refund Went

After an offset occurs, the IRS sends a notice that includes:

• Which agency took the money
• The amount taken
• The remaining amount (if any)
• Contact information for the agency

You cannot dispute an offset with the IRS.

You must contact the agency listed on the letter.

When Your Refund Is Partially Taken

Offsets can take:

• The full refund
  or
• Only a portion of it

Example:

Refund: $2,400
Offset: $1,800
Remaining: $600

The transcript will show:

• TC 898 for the offset amount
• TC 846 for the remaining refund issued

If the entire refund is taken, there may be:

• TC 898 (full amount)
  and no subsequent TC 846.

What If the Debt Was Your Spouse’s, Not Yours?

If you filed jointly and the debt belonged to your spouse alone, you may qualify for:

Form 8379 — Injured Spouse Allocation

This allows you to reclaim your portion of the refund.

Example situations:

• Your spouse owed child support
• Your spouse defaulted on student loans
• Your spouse had state tax debt

You may still be entitled to your share.

What If the Offset Is a Mistake?

Refunds can be incorrectly seized due to:

• Wrong SSN cross-match
• Identity theft
• Incorrect debt records
• Outdated debt data
• Another person’s debt attached mistakenly

In these cases:

• Contact the agency first
• Request a debt verification
• If needed, file identity theft documentation
• Use Form 14039 (in ID theft situations)

If the agency made a mistake, they must issue the reimbursement—not the IRS.

Does an Offset Affect Future Refunds?

Yes.

Once your SSN is flagged with debt:

Your refund may continue to be intercepted every year until the debt is fully paid off.

You can check TOP debt status at:

Treasury Offset Program Call Center
(automated line)

This gives you the balance of outstanding obligations.

Seeing TC 706 or TC 898 on your transcript means your refund did not disappear—it was redirected.

• TC 706 = IRS seized refund for internal tax debt
• TC 898 = Government seized refund for outside debt via TOP

Your next step is to identify:

1. Which agency received the refund
2. Why it was taken
3. Whether you qualify for appeal or injured spouse relief

The IRS is simply the messenger; the money went to someone you owed.