CP92 Notice: Notice of Levy on State Tax Refund

Understanding the CP92 Notice: Your State Refund and the IRS

Hey there, taxes can be confusing, right? Today, let’s talk about a specific IRS notice called the CP92 Notice. This one is about your state tax refund and what the IRS can do with it. Don’t worry, we’ll break it all down in plain English.

What Triggers a CP92 Notice?

The IRS doesn’t just randomly take your state tax refund. It only happens if you owe federal taxes and haven’t paid them. Think of it like this: you owe the IRS, and the IRS knows you’re getting a refund from your state. They are going to use the refund to pay your debt.

• You Have Unpaid Federal Taxes: This is the main reason you get a CP92 notice. Maybe you didn’t file your taxes or forgot to pay the full amount. Perhaps you filed on time but didn’t pay, or maybe you had an audit and now you owe more than you thought.
• The IRS Has Sent You Other Notices: Before taking your state refund, the IRS usually sends other notices to inform you about the debt. If you ignore those notices, the IRS might take action and send you a CP92 notice.
• State and Federal Government Collaboration: State tax authorities work with the IRS. They share information. If the IRS knows you owe federal taxes, and the state knows you are due a refund, the IRS can legally step in.

How Does a CP92 Notice Work?

Okay, so you got a CP92 notice. What does it actually mean? Let’s unpack the mechanics of it.

1. The IRS Sends the Notice: The CP92 notice is a formal letter telling you they are going to take your state refund. It will state how much you owe in federal taxes.
2. The IRS Notifies the State: The IRS informs your state tax agency that you owe money. They place what’s called a “levy” on your refund.
3. Your State Refund Is Redirected: Instead of sending your tax refund to you, the state sends it directly to the IRS. This money goes to reduce your federal tax debt.
4. You Might Not Receive the Full Refund: If the state refund isn’t enough to cover the full amount of your federal tax debt, you still owe the remainder to the IRS.
5. Not all tax refunds are taken: State tax refunds are not always taken. There are federal rules on what funds they can and cannot take.

What Information is Included in a CP92 Notice?

These notices can be confusing, but they usually contain similar information. Here is what you’re likely to find:

• Your Name and Address: The IRS will include your personal information.
• Taxpayer Identification Number: This is usually your Social Security number (SSN) or Employer Identification Number (EIN).
• The Amount You Owe: The notice will tell you exactly how much you owe in unpaid federal taxes.
• Tax Year: The tax year that the overdue taxes are for.
• The Amount of Your State Refund: The state is usually clear on the refund amount, but sometimes the amount of the refund is unknown.
• Contact Information: The IRS will provide contact information if you have questions or need to make arrangements to pay.
• Your Rights: You will find a brief description of your rights and how to dispute the levy if you believe it’s in error.

Who is Affected by the CP92 Notice?

A CP92 notice affects anyone who owes federal taxes and is expecting a state tax refund. If you’re up-to-date on your federal taxes, you don’t need to worry about this. However, if you have overdue taxes, even if they’re small, you’re potentially at risk. Here’s who the notice usually targets:

• Individuals: People who have individual tax obligations and haven’t paid their federal taxes.
• Business Owners: If a business owner owes federal business taxes, their personal or business state tax refund may be taken.
• Self-Employed Individuals: Those who pay self-employment tax through their federal filings.
• Estates and Trusts: These entities can also have state refunds taken for any unpaid federal tax liability.
• Those with Past Tax Issues: If you’ve had trouble with taxes in the past, you might be more likely to have a levy on your state refund.

Related Tax Concepts

Understanding related tax terms can be very helpful. Here are a few concepts linked to the CP92 notice:

• Tax Lien: A legal claim against your property for unpaid taxes. A tax levy, like the one described in the CP92 notice, is different. A tax levy involves taking your assets (state refund in this case), while a tax lien is a claim against the asset.
• Tax Levy: A legal seizure of your property to pay off unpaid taxes. The CP92 notice is a notification of a state tax refund levy.
• Offset: When a government agency (like the IRS) takes your money (like your state tax refund) to pay off debts you owe to another government agency.
• Notice of Deficiency: A notice informing you that the IRS believes you owe more in taxes.
• IRS Form 1040: The U.S. individual income tax return form. This is the form used to determine if a taxpayer owes money to the federal government.
• Payment Plan (Installment Agreement): An agreement with the IRS that allows you to pay your tax debt in monthly installments.

What to Do if You Receive a CP92 Notice

Getting a CP92 notice can be a bit unsettling, but don’t panic. Here’s a step-by-step guide on what to do:

1. Review the Notice Carefully: Make sure you understand why you received it, the amount you owe, and the tax year involved.
2. Verify the Debt: Check your records to make sure you actually owe the amount stated. If you think there has been a mistake, gather documentation to prove it.
3. Pay the Debt: If the debt is correct, the quickest way to deal with it is to pay it.
4. Set Up a Payment Plan (if needed): If you can’t pay the full amount, contact the IRS to set up a payment plan. It’s much better to work with them to make payments than to have them levy your assets.
5. Contact the IRS: If you have questions or need to discuss the notice, call the number listed on the CP92.
6. Seek Professional Help: Consider consulting a tax professional or enrolled agent. They can help you navigate the process and negotiate with the IRS on your behalf.
7. File Future Returns on Time: To avoid this issue in the future, ensure you file your taxes on time and pay your taxes by the deadline.

Common Mistakes and Misconceptions

Let’s clear up some common misunderstandings about the CP92 notice:

• Misconception: “The IRS is randomly taking my money.” Reality: The IRS only takes state refunds for legitimate federal tax debt. It isn’t random.
• Misconception: “I can ignore the notice.” Reality: Ignoring the notice doesn’t make the problem disappear. It can cause further issues like penalties and interest.
• Misconception: “I can just dispute the levy.” Reality: You can dispute the levy, but you must have a valid reason and supporting documentation.
• Misconception: “The IRS will take all of my money.” Reality: The IRS only takes the amount needed to satisfy the unpaid debt. If your refund is larger, the remaining portion will be returned to you.
• Misconception: “State income tax refunds are the only thing the IRS can levy.” Reality: The IRS can levy other income and property, including your bank accounts, wages, retirement accounts, and more.

Tips to Avoid a CP92 Notice

Prevention is always better than cure. Here are some tips to help you avoid a CP92 notice:

• File Your Taxes On Time: The most basic step is filing your tax return on time. Even if you can’t pay, filing on time will avoid late filing penalties.
• Pay Your Taxes in Full: If you owe, pay the full amount by the tax deadline to avoid interest and penalties.
• Set Up a Payment Plan: If you can’t pay the full amount, set up a payment plan with the IRS.
• Double Check Your Work: Before submitting your return, make sure everything is correct. Check for data entry errors.
• Keep Good Records: Maintain detailed records of your income and expenses. This will help you file accurately.
• Seek Professional Help: If you have a complex tax situation, consult a tax professional for guidance.

Final Thoughts

The CP92 notice might seem scary, but with the right knowledge, you can handle it effectively. The main message here is to stay on top of your tax obligations. By filing on time, paying what you owe, and reaching out to the IRS when needed, you can avoid these notices altogether. Remember, proactive action is always the best approach when it comes to taxes. Stay informed, stay prepared, and you’ll do just fine.