Car dealers need to be aware of the Federal “offset” program as it applies to the economic stimulus checks. Don’t hold your breath if that customer you talked to the other day owes back taxes or child support.

Uncle Sam giveth, and taketh away

A recent news commentary on NPR regarding tax offsets and the economic stimulus checks reminded us here at Auto Credit Express, that our dealers, especially those involved with special finance, should be aware of how the Federal Offset Program applies to the economic stimulus checks. Here’s what you need to know:

As a former employee of the IRS (talk about your conversation-stopper at a party), I was always aware of the Federal “offset” program when it came to tax refunds as they pertained to things such as back taxes and child support.

Basically it goes like this: If you owe the Federal Government for back taxes, any expected refund from a current filing can be taken, up to the amount owed, to cover a previous Federal tax debt. In addition, certain states have agreements with the Federal government that cover either state tax liabilities, back child support payments, or both. As it states in IRS Publication 17:

“If you are due a refund but have not paid certain amounts you owe, all or part of your refund may be used to pay all or part of the past-due amount. This includes past-due federal income tax, other federal debts (such as student loans), state income tax, and child and spousal support payments. You will be notified if the refund you claimed has been offset against your debts.”

How this applies to economic stimulus checks

The economic stimulus checks are, essentially, forward-looking tax credits. As such, the tax credit is essentially a tax refund. Since it is a refund, it is subject to the Federal offset program, just like any other type of tax refund.

The Bottom Line

If you pull a customer’s bureau and see a tax lien or judgment for child support, be aware that they will not be receiving an economic stimulus check. If the customer was planning on using this check for a down payment, you can probably remove that amount from the equation right now.