It is that time of year with qualifying Minnesotans getting refunds from the state for property taxes or rent paid. Or not. Some unhappy folks are not getting their tax refunds, thanks to Revenue Recapture.
The Revenue Recapture Act authorizes the Minnesota Department of Revenue to take your state tax refunds to pay debts you owe to other public agencies, including the Minnesota college and university system, local governments, or the IRS. They can also “capture” other monies that might come through the State, like lottery winnings. Learn more at the MN Department of Revenue website.
OPEN YOUR MAIL!
You may be shocked and angry when you don’t get your refund. But, you wouldn’t be, not if you opened and read your mail. Notices of the debt have been sent out for some time before it ends up with the Department of Revenue. And, the entity that is making a claim on the refund has to send a letter within 5 days of notifying the Department of Revenue with details of the debt, how to contest it, and the right to appeal. The law allows for 45 days to contest the recapture.
DEBTS SUBJECT TO REVENUE RECAPTURE:
- State taxes
- Child support
- Court-ordered criminal restitution
- Debts owed to a hospital or ambulance services
- Debts to other Minnesota agencies
- Debts to government agencies from other states
- Federal taxes
In that order.
THE LAW DOES ALLOW FOR EXEMPTIONS FROM RECAPTURE:
- Medical debt if the debtor’s income was below a certain threshold at the time of service. That limit changes each year, but it isn’t very generous. For example, in 2016, the limit for an unmarried single person was $12,620. The income limit is based on the number of dependents, so a family with 2 dependents can earn $19,110.
- Your debt was for over-payment of public assistance and you still get assistance. But, if the over-payment was due to dishonesty or purposefully broken rules of the program, they can take your refund.
- You have a payment plan set up, are making payments, and the plan specifically says they won’t use recapture.
- The debt is more than 6 years old. Except for federal student loans – they follow you to the grave.
The big BUT here is that you must tell the Department of Revenue you are exempt based on a situation above.
APPEALING THE RECAPTURE
The appeal starts with the agency requesting the recapture, not the Department of Revenue. Write the agency explaining why they shouldn’t keep your refund:
- You don’t owe the debt (because it isn’t yours, or it has been paid.)
- You are exempt from recapture.
Remember – you’ve got 45 days to appeal after getting the written notice. When they receive your appeal request, they must set a hearing within 30 days.
You didn’t get your notice? You then get a hearing on both the notice not received and the issue of taking your refund.
THE FEDS AND OTHER STATES
The IRS will also take federal tax refunds to pay debts (“offset” in IRS-speak), including:
- Federal tax debts
- Federal agency debts like a delinquent student loan
- State income tax obligations
- Past-due child and spousal support
- Certain unemployment compensation debts owed to a state
The IRS apply the offsets to federal debts first. Like MN Revenue Recapture, you will get a letter noting the original refund and the offset amount. It will also give the contact information for the agency that received the offset.
State laws can vary, so if you live in another state or are expecting a refund from another state, check with the taxation or revenue department of that state.
ON THE POSITIVE SIDE – REVENUE RECAPTURE IS A RELATIVELY PAINLESS WAY TO PAY A DEBT
I have heard from people that they don’t file taxes because the government just takes their refund for their student loans or other debt. Some debts never go away – like debt to the government. If you are eligible for a refund, file your taxes! Reduce that debt! It’s not like that money is coming out of your pocket – it was never in your pocket.
Author Mary Ellen Kaluza is a Certified Financial Counselor with LSS Financial Counseling.