Can They Take My Taxes if I'm Making Payments on a Defaulted Loan?

by Michael Wolfe

When a person owes money on a loan, he will generally face a number of actions by creditors seeking payment. Among the options available to many creditors is garnishment of the individual's wages. Garnishment is not available to creditors in all situations. And, garnishment of tax refunds is almost never available to a private creditor without a court judgment. However, the government may be able to garnish tax refunds.


When a person owes money on a debt, he may face a civil suit filed by the party seeking repayment. If the judge rules that the person owes money on the debt, and the person doesn't pay according to the judge's terms, the judge may grant the debt collector the right to garnish the person's wages or seize funds from his bank account.

Debt Repayments

If a garnishment order is placed, then the person must petition the court to have it lifted. If the person begins to make payments on the defaulted loan that led to the garnishment order, this may be enough to convince the judge to lift the order. However, starting payments will not automatically cause the garnishment to stop. An employer must receive an order from the judge before he can stop garnishing wages.

Tax Refunds

Private creditors cannot garnish tax refunds from states — except in Michigan, if the judge approves a creditor petition. However, governments are often able to garnish tax refunds, particularly if the debtor owes the government money in back taxes. If the person owes the government money from a defaulted student loan, then he could well face seizure of his tax refund by the Internal Revenue Service.

Taking Taxes

Although a person could, in certain instances, have his tax refund garnished, a person will never have his actual taxes garnished. When a person pays taxes to the government, these payments will not be intercepted by anyone to pay off a debt. Neither the government nor a private creditor has a right to use tax payments to pay off another kind of debt, such as a defaulted loan.


  • "Managing Debt For Dummies"; John Ventura; 2011

Photo Credits

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