Education Department Freezes Seizure of Tax Refunds, Social Security

Education Department Freezes Seizure of Tax Refunds, Social Security

About nine million people have a federal student loan in default, but they won't have their tax refunds frozen due to a Department of Education decision.

Fed student loan borrowers that are in default have one less thing to worry about this hectic tax season.

The U.S. Department of Education has decided to freeze the seizure of tax refunds, Social Security, and other government payments regarding those loans until November.

Nine Million Affected

According to CNBC, roughly “nine million people have a federal student loan in default, which means they’ve fallen at least 270 days behind on payments.”

The Department of Education, in addition to other federal and state agencies, has the authority to collect on delinquent debt via the Treasury Offset Program, which was paused due to the ongoing coronavirus pandemic.

However, that “policy ends after May 1, fueling concern among consumer advocates that the government would seize tax refunds issued after that date, including benefits like the earned income, child and Recovery Rebate tax credits aimed at low-income households,” CNBC noted.

The Department of Education will hold off on restarting collection via the Treasury program for six months after the moratorium concludes.

“This policy means you won’t lose money from certain government payments, such as the child tax credit, Social Security payments, and tax refunds for the 2022 tax season,” the agency’s website says.

Still, the government is allowed to seize federal tax refunds and up to 15 percent of Social Security payments to collect debts associated with child support, unemployment insurance, and state income taxes.

Child Tax Credit Also Protected

Just last week, Education Secretary Miguel Cardona confirmed on Twitter that the agency would not be withholding any tax refunds related to the American Rescue Plan-approved enhanced child tax credit (CTC).

The government’s pause on student loans protects the refunds issued before May 1, but those received after that date previously did not enjoy the same protection.

“The continued pause on student loan payments has helped protect Child Tax Credits for millions of borrowers, including those in default,” one Education Department official wrote in an emailed statement, according to CNBC. “The Department of Education will ensure that families will not see their CTC benefits garnished through Treasury offset this tax season, including those refunds issued after May 1.”

Between July and December of last year, the enhanced credits provided eligible parents as much as $3,600 for a child under the age of six and up to $3,000 for children between ages six and seventeen. Broken down, this all meant that a $250 or a $300 payment for each child was direct deposited or sent in the mail to parents each month.

These CTC-eligible families are now entitled to the second half of the tax credit money when they file a tax return.

Ethen Kim Lieser is a Washington state-based Science and Tech Editor who has held posts at Google, The Korea Herald, Lincoln Journal Star, AsianWeek, and Arirang TV. Follow or contact him on LinkedIn.

Image: Reuters.