Being eligible for a tax refund doesn’t guarantee you’ll receive the entire overpayment amount once the IRS completes processing your tax return.
The agency cannot approve your full refund if you owe federal taxes, and it is obligated by the law to withhold a sufficient amount to settle the outstanding tax debt. The IRS Code 826 reflects this as it informs you that a portion or the entire refund was used to cover a tax debt.
This transaction code doesn’t refer to all taxpayers’ unpaid obligations towards other federal or state agencies. You’ll see a different code if the IRS withholds your refund through the Treasury Offset Program.
Let’s examine what the IRS Code 826 means on a tax account transcript.
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Tax Debt and Tax Refund Rules
The IRS can withhold tax refunds to settle certain types of debts.
Missing child support payments, falling behind on student loan payments, failing to pay state income tax, owing federal taxes, or pending nontax obligations are why tax refunds could be lower than expected.
Taxpayers paying an installment agreement are ineligible for tax refunds until they pay off their debt.
Any amount exceeding the due balance will be refunded unless a taxpayer has other federal nontax obligations such as unpaid fines or direct loans.
Once it collects taxpayers’ outstanding federal debts, the agency might use the remaining tax refund to settle debts through TOP. However, Code 826 mostly refers to tax debts taxpayers owe to the IRS.
Accessing a Tax Account Transcript
The Get Transcript tool is available to all taxpayers with an account on the IRS website. You can start using this tool after the IRS accepts your tax return and uploads it to the Individual Master File System.
This usually happens within 24 to 48 hours after you file a tax return electronically or a couple of weeks after you submit a paper tax return.
Get Transcript lets taxpayers request different transcript types so you can use it to gain access to a tax return transcript or a wage and income transcript.
Tax account transcripts contain transaction codes the IRS uses to notify a taxpayer it took a particular action. Hence, if you access this transcript days after filing a tax return, you’ll only see Code 150 and a handful of other transaction codes.
The frequency at which the IRS will upload new TCs to your transcript will depend on the cycle code, but in most cases, new codes will appear on your tax account transcript every week.
IRS Code 826 is added to a transcript after return processing is completed and tax credit, tax deduction, and tax liability amounts are already determined.
IRS Code 826 Analysis
All TCs on tax account transcripts contain the Code, Explanation of Transaction, Date, and Amount sections. The information next to Code 826’s code section will offer hints regarding why the IRS withheld a portion or the entire tax refund amount.
- Code – You’ll find the code’s number in this column.
- Explanation of Transaction – Code 826’s description is ‘Credit Transferred Out To’ followed by the source of the debt, usually Form W2 or Form 1040, and the year the debt was accrued.
- Date – This section shows when the IRS withheld your refund and utilized it to settle a tax debt.
- Amount – The amount withheld is always a positive number indicating a tax debt. On the other hand, tax credit amounts are always negative numbers.
Please note that the Overpayment Transferred title of IRS Code 826 in Section 8A – Master File Codes document is similar to its description in the Explanation of Transaction section of a tax account transcript.
Code 826 Remarks in the Master File Code document suggest that this TC refers to an ‘overpayment credit amount transferred to another module within the taxpayer’s account.’
The Meaning of IRS Code 826 on a Tax Account Transcript
Understanding what IRS Code 826 might mean on a tax account transcript isn’t difficult. This TC indicates that the IRS used a tax refund to settle a tax debt. The code also reveals if the tax debt was accrued during the current or previous tax years.
Code 826 usually denotes W2, 1040, or 1099 withholdings. These forms are used to report a taxpayer’s income and employment taxes. You’ll see this code on your tax account transcript if you underreported your income or underpaid your employment taxes.
The IRS sends a notice via mail to taxpayers after transferring a tax refund to another module to collect an outstanding tax debt. Consequently, Code 826 is almost always followed by Code 971 Notice Issued on a tax account transcript.
You can appeal this decision if you disagree with the Code 826 amount, and you can find instructions on how to do so in the notice the IRS sends you. However, you must present substantial evidence that the tax debt is already paid to overrun the decision.
Code 846 Refund Issued will only appear on a tax account transcript if the amount withheld under Code 826 is lower than the total refund amount.
Frequently Asked Questions
Taxpayers with outstanding tax debt aren’t eligible for tax refunds. The IRS uses all tax overpayments to cover taxes you owe to the federal government.
Taxpayers who want to challenge the IRS’ decision to withhold their tax refund and use it to settle a federal tax debt have thirty days to file an appeal.
This TC doesn’t indicate you have to contact the IRS, but reaching out to an IRS agent might help you understand why your tax return was used to pay a tax debt.
The IRS can collect federal tax debts for up to ten years. The agency is unlikely to forgive the amount due during this period because the debt is erased after the 10-year Statute of Limitations expires.
Author:
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
