The California Franchise Tax Board (FTB) resumed their collection activity this month related to tax refunds and other government payments. They had been suspended on March 12, 2020 as tax relief to the public during the pandemic.
The FTB had halted their offset programs except for the collection of child support which continued. The FTB has three main programs that have restarted. A taxpayer with a delinquent state income tax can have their Federal tax refund (from the Internal Revenue Service, IRS) seized to pay the state income tax liability. Other types of federal payments are also subject to seizure.
California state and local agencies can also send a request letter to the FTB if they are owed taxes or fees. The FTB will collect tax refunds, lottery winnings or unclaimed property and remit it to the requesting California agency.
The last program involves other state tax agencies, i.e., Multistate Offsets. If a taxpayer is due a tax refund in a state outside of California, that state can seize the tax refund and send it to the California FTB to pay off an FTB tax liability. The opposite is also true. If a taxpayer has a California FTB tax refund and another state has sent an offset request to California for the non-California deliquent state income tax, California will seize the refund and send it to the other state tax agency.
If you had your refund offset (seized) and you believe this happened in error, you may dispute the issue with the tax agencies involved.
Additionally, if you have delinquent tax liabilities and want to avoid your refund being offset, some effective tax planning during the year prior to December 31 can prevent an offset.