Hardship Caused by Offset of Social Security Benefits, Federal and/or State Income Tax Refunds, or Other Payments
Before the Department referred your defaulted student loan(s) or grant claim(s) to the Department of the Treasury for offset, the Department offered you - either directly or through the guaranty agency that holds your loan - an opportunity to avoid offset by either agreeing to repay the debt or proving that you do not owe the debt. As explained in that notice, unless you took one of these actions by the 65-day deadline, the Department would request that any federal and/or state tax refunds and other payments owed to you, be withheld and applied to satisfy the debt.
If you claim that this withholding action is causing you and your dependents financial hardship, the Department may consider modifying or suspending withholding action. To present your claim, you must contact the Department or the guaranty agency that holds your debt, and must submit documentation satisfactory to the holder of the debt to support your claim. The Department or the guaranty agency, as its designated representative, will consider your claim and may agree to modify the withholding action. You may be required to complete a statement of financial status, which you can download now.
If you filed a federal income tax return jointly with your spouse, the entire refund from that return, including the part that came from withholdings on earnings of your spouse, is subject to offset. The non-liable or "injured" spouse may reclaim his or her portion of the refund by filing an injured spouse claim form (IRS Form 8379) with the Internal Revenue Service. You may download this form at the IRS Web site or may request one from the IRS by calling 1-800-829-1040. You also may be able to obtain the form at your local library, IRS office or from your tax preparer. Only the IRS will be able to answer questions about whether you qualify for an injured spouse refund and how much you may receive. Borrowers filing joint state tax returns should check with their state Department of Taxation to determine if similar relief is available for state tax refunds.
Earned Income Tax Credit
The entire amount of the refund, including any portion based on an earned income tax credit can be legally offset and applied to satisfy your defaulted federal student loan or grant obligation.