If you owe money to a federal agency for something other than taxes, the government has a set of collection powers that go well beyond what a private creditor can use. Federal non-tax debt collection includes wage garnishment without a court order, seizure of your tax refund, offset of Social Security and other federal payments, credit bureau reporting, and a lockout from FHA, VA, and USDA mortgages. You get written notice and a chance to contest or negotiate before most of these tools are used, but the underlying debt has effectively no expiration date for administrative collection.
What Counts as a Federal Non-Tax Debt
A federal non-tax debt is any money you owe the United States that does not come from the tax code. The most common example is a defaulted federal student loan. Others include Small Business Administration loans in default, overpayments of Social Security benefits, overpayments of veterans’ disability compensation or pension, food stamp overpayments owed to the Food and Nutrition Service, federal salary overpayments, defaulted agricultural loans, and penalties owed to regulatory agencies like the FCC.1Social Security Administration. POMS GN 02410.300 – Benefit Payment Offset (BPO)
The originating agency handles collection first, sending demand letters and calling. If that fails, the debt is transferred to the Bureau of the Fiscal Service (BFS) at Treasury, which takes over collection, reports the debt to credit bureaus, refers it to the Treasury Offset Program and private collectors, and can start wage garnishment.2Bureau of the Fiscal Service. Frequently Asked Questions About the Cross-Servicing Program
How the Balance Grows Once You’re Delinquent
Federal agencies are required to add three categories of charges to a delinquent debt.3Office of the Law Revision Counsel. 31 USC 3717 – Interest and Penalty on Claims Interest accrues from the date of delinquency at a minimum annual rate equal to the average investment rate for Treasury tax and loan accounts, and it is not compounded. If the debt sits unpaid for more than 90 days, agencies add a penalty of up to 6 percent per year on the overdue amount. On top of that, they charge administrative costs to cover the actual expense of processing and handling the delinquent debt, including collection agency fees and hearing costs.
The order in which your payments are applied matters more than most people expect. Federal regulation directs that a partial payment goes first to contingency fees paid to collection contractors, then to penalties, then to administrative costs, then to interest, and only last to principal.4eCFR. 31 CFR 901.9 – Interest, Penalties, and Administrative Costs On a long-delinquent debt, early payments may not touch the principal at all.
Tax Refund and Federal Payment Offset
The Treasury Offset Program (TOP) intercepts federal payments that would otherwise come to you and redirects them to the debt. Agencies must notify Treasury of any non-tax debt more than 120 days delinquent for offset.5Office of the Law Revision Counsel. 31 USC 3716 – Administrative Offset
The most familiar form is tax refund offset. Before it happens, the creditor agency must give you at least 60 days to present evidence that the debt is not past due or not legally enforceable.6Office of the Law Revision Counsel. 31 USC 3720A – Reduction of Tax Refund by Amount of Debt If you file a joint return and your spouse is not liable for the debt, the non-debtor spouse can file an injured spouse claim with the IRS to recover their share.
TOP goes further than refunds. Federal retirement annuities, contractor payments, and travel reimbursements can all be intercepted. Social Security, Railroad Retirement, and Black Lung benefits can also be offset, but the first $9,000 you receive from these programs in any 12-month period is protected.5Office of the Law Revision Counsel. 31 USC 3716 – Administrative Offset That works out to $750 per month that cannot be taken. After an offset, Treasury sends written notice identifying the creditor agency and the amount collected.
Administrative Wage Garnishment
Administrative Wage Garnishment (AWG) lets a federal agency order your employer to withhold part of each paycheck without first going to court. The authority is 31 U.S.C. 3720D, with detailed rules at 31 CFR 285.11.7Bureau of the Fiscal Service. Administrative Wage Garnishment Background AWG applies to non-federal employees; federal employees are collected against through a separate salary offset process.
Two limits cap the amount withheld from each paycheck, and your employer must apply whichever produces the smaller deduction. The first cap is 15 percent of disposable pay, which is what remains after health insurance premiums and legally required deductions like income and Social Security taxes. Court-ordered withholdings such as child support are not subtracted before calculating disposable pay. The second cap is the amount by which your weekly disposable pay exceeds 30 times the federal minimum wage. The federal minimum wage is $7.25 per hour, making that floor $217.50 per week.8eCFR. 31 CFR 285.11 – Administrative Wage Garnishment
A quick example. If your weekly disposable pay is $300, the garnishment is the lesser of $45 (15 percent of $300) or $82.50 ($300 minus $217.50), so $45 comes out. If your weekly disposable pay is only $240, the garnishment is the lesser of $36 or $22.50, so only $22.50 is withheld.
Employers who fail to comply with a garnishment order are personally liable for what they should have withheld, plus the government’s attorney fees and possible punitive damages.9Office of the Law Revision Counsel. 31 USC 3720D – Garnishment
Credit Reporting and the CAIVRS Mortgage Block
Federal agencies are required to report delinquent debts to consumer credit bureaus, and they may also report non-delinquent ones.10eCFR. 31 CFR 901.4 – Reporting Debts A delinquent federal debt lands on your credit report the same way a defaulted private account would.
The less obvious consequence is the Credit Alert Verification Reporting System (CAIVRS), a federal database of people with delinquent federal debts. Lenders must check CAIVRS before approving FHA, VA, or USDA loans. If your name is in the system, you cannot get any of these mortgages until the debt is resolved through repayment, rehabilitation, or consolidation.11USDA Rural Development. CAIVRS Appendix 7 Participating agencies include HUD, the VA, the Department of Education, the USDA, the SBA, and the FDIC. For anyone trying to buy a home with a government-backed loan, this is often the most immediate consequence of a delinquent federal debt.
Notice and Hearing Rights Before Collection Starts
The government cannot start garnishing wages or offsetting payments without giving you notice first, but the specifics differ by tool.
Before collecting through administrative offset, the agency must send written notice of the type and amount of the debt and its intent to collect by offset, give you a chance to inspect and copy agency records, offer an internal review of the agency’s decision, and give you the chance to enter into a written repayment agreement.5Office of the Law Revision Counsel. 31 USC 3716 – Administrative Offset For tax refund offset, you get at least 60 days after notice to present evidence the debt is not past due or not legally enforceable.6Office of the Law Revision Counsel. 31 USC 3720A – Reduction of Tax Refund by Amount of Debt
For wage garnishment, the agency must mail written notice at least 30 days before garnishment begins, describing the debt, the intent to garnish, and your rights.9Office of the Law Revision Counsel. 31 USC 3720D – Garnishment You can request a hearing on whether the debt exists, the amount owed, or the terms of the proposed repayment schedule, including financial hardship.7Bureau of the Fiscal Service. Administrative Wage Garnishment Background If your hearing request is filed within 15 business days of the date on the notice, the agency must hold the hearing before sending any garnishment order to your employer. Miss that 15-day window and garnishment can begin while the hearing request is pending. The hearing can be oral or a paper review, depending on whether the dispute turns on credibility or can be decided from the record.8eCFR. 31 CFR 285.11 – Administrative Wage Garnishment
One boundary to know: the Fair Debt Collection Practices Act does not apply to federal officers or employees acting in their official capacity.12Federal Trade Commission. Fair Debt Collection Practices Act When BFS or its private collection contractors contact you about a federal debt, the FDCPA’s rules on call times, harassment, and third-party contacts do not govern them. Your protections come from the due process requirements above.
Negotiating a Compromise or Payment Plan
You can propose to pay less than the full balance. Federal agencies have authority to compromise debts when the principal is $100,000 or less, excluding interest, penalties, and administrative costs.13Office of the Law Revision Counsel. 31 USC 3711 – Collection and Compromise of Claims Above $100,000, compromise authority sits with the Department of Justice.14eCFR. 31 CFR Part 902 – Standards for the Compromise of Claims
An agency can accept a compromise when you cannot pay the full amount in a reasonable time (verified through credit reports or financial documents), when the government cannot collect the full amount through enforcement in a reasonable time, when the cost of collecting exceeds the expected recovery, or when there is significant doubt the government could prove its case in court.
Once BFS is handling the debt through Cross-Servicing, its private collection contractors can negotiate settlements up to 50 percent of the balance without additional approval. Offers above 50 percent, or on debts with principal over $500,000, need BFS or Department of Justice approval.2Bureau of the Fiscal Service. Frequently Asked Questions About the Cross-Servicing Program A repayment agreement can be proposed at any stage, including before the debt is referred to BFS, and the agency is required to consider it.
Why Waiting It Out Doesn’t Work
Federal non-tax debt is different from private debt in one important respect. Two time limits exist, but only one actually constrains the government.
If the government wants to sue you in court, it must file within six years of the date the right of action accrues. A partial payment or written acknowledgment resets that clock.15Office of the Law Revision Counsel. 28 USC 2415 – Time for Commencing Actions Brought by the United States The same statute states that the six-year limit does not prevent the government from collecting through administrative offset under 31 U.S.C. 3716. Tax refunds, federal retirement payments, and Social Security benefits can be intercepted indefinitely. A federal student loan that defaulted twenty years ago can still trigger a tax refund offset. There is no waiting period that closes off administrative collection the way it can close off a private creditor’s lawsuit.