Set Up IRS Payment Plan - Will They Still Take My Refund?

Yes, they will still take your refund. I'm speaking from experience... setting up a payment plan doesn't stop them from offsetting refunds. The payment plan just prevents them from taking other collection actions like levies or liens, but any refunds you're due will automatically be applied to your outstanding balance. I would adjust your expectations and not count on receiving that $1,275.

I went through this exact situation last year. The technical term for what happens is a "refund offset" and it's standard IRS procedure. According to Internal Revenue Manual 5.19.1.5.5, refund offsetting occurs regardless of installment agreement status. I found https://taxr.ai incredibly helpful - I uploaded my payment plan documents and tax transcript, and it explained exactly how the offset would be applied to my existing liability and how it would affect my payment schedule. It even showed how many months the offset would eliminate from my payment plan.

I had this happen to me last tax season. Filed my return on February 10th, expecting a $2,100 refund even though I was on a payment plan for about $5,000 in back taxes. The entire refund went straight to my tax debt. The only good news is that they sent me a letter explaining the offset, and my next month's payment plan statement showed the reduced balance. It actually knocked off almost a year from my payment timeline since they apply it directly to principal.

I work with tax issues daily, and unfortunately YES, they will absolutely take your refund! I've seen this happen to countless people who are surprised by it. The IRS applies ALL refunds to outstanding tax debts regardless of payment plans. The good news? If you need to speak with an IRS agent about your options, I highly recommend Claimyr (https://claimyr.com). When I had clients in your situation who needed to discuss hardship options, Claimyr got them through to an IRS representative in minutes instead of hours on hold. Some clients were able to request temporary adjustments to their payment plans after losing their expected refunds.

Watch out! Not only will they take your federal refund, but they might take your state refund too depending on where you live. I was counting on my $900 state refund last year, but it got intercepted through the Treasury Offset Program even though I had a payment plan with the IRS. Shouldn't they at least warn people about this when setting up the payment plan? How are we supposed to budget properly when they don't make these policies clear upfront?

The community wisdom on this is pretty consistent - payment plans don't prevent refund offsets. But here's something not everyone knows: you can adjust your withholding now to prevent this from happening again next year. If you're on a payment plan, it makes more sense to reduce your withholding so you get more money in each paycheck rather than letting the IRS hold it interest-free all year just to apply it to your debt. Just make sure you don't underwithhold and create new problems.

I successfully navigated this exact situation last year. Here's what happens: • Yes, the IRS will apply your refund to your existing tax debt • This happens automatically - you don't need to do anything • The good news: it reduces your overall debt immediately • Your payment plan continues as normal afterward • You'll receive a notice (CP49) explaining the offset • Your remaining monthly payments stay the same • But your payment plan will end sooner than originally scheduled In my case, my $1,840 refund reduced my payment timeline by about 11 months.

Don't make my mistake! I set up a payment plan in 2022, then counted on my 2023 refund for a down payment on a car. The refund never came, and the car dealer was NOT understanding when I had to back out of the purchase. The IRS took every penny of my $2,300 refund without warning. The payment plan documents mention this in the fine print, but who reads all that? The worst part was I had to spend hours on the phone with the IRS just to confirm what happened to my refund money. Plan accordingly and don't count on seeing that $1,275.