Federal non-tax debt collection gives the government tools that go well beyond what a private creditor can use: it can garnish your wages without a court order, intercept your tax refund, take a slice of your Social Security check, report the debt to the credit bureaus, and block you from getting an FHA, VA, or USDA mortgage. These powers apply to debts owed to any federal agency other than the IRS, and the government can keep pursuing most of them for the rest of your life.
You do have rights, though. Before the serious collection tools kick in, the agency has to send you written notice and give you a chance to dispute the debt, ask for a hearing, or propose a payment plan. Knowing what the government can do, and when you have to act, is the difference between resolving the debt on manageable terms and watching it drain every federal payment you receive.
What Counts as a Federal Non-Tax Debt
A federal non-tax debt is any money you owe the United States that doesn’t come from the tax code. The most common ones are defaulted federal student loans. Beyond that, the list includes Small Business Administration loans in default, overpayments of Social Security, VA disability, or VA pension benefits, 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)
Collection usually starts with the originating agency sending demand letters and calling you. If that doesn’t work, the agency is required to hand the debt off to the Bureau of the Fiscal Service (BFS) at the Treasury Department, generally within 180 days of delinquency.2Office of the Law Revision Counsel. 31 USC 3711 – Collection and Compromise of Claims Once BFS has it, the agency can report the debt to credit bureaus, refer it to the Treasury Offset Program and private collection contractors, and begin wage garnishment.3Bureau of the Fiscal Service. Frequently Asked Questions About the Cross-Servicing Program
How the Balance Grows While You’re Delinquent
Once the debt is delinquent, three charges start stacking onto the principal.4Office of the Law Revision Counsel. 31 USC 3717 – Interest and Penalty on Claims
- Interest, at a minimum annual rate equal to the Treasury’s current value of funds rate, accruing from the date of delinquency but not compounded.
- A penalty of up to 6 percent per year, added once the debt has been unpaid for more than 90 days.
- Administrative costs for processing the delinquent debt, including personnel time, collection agency fees, and hearing costs.
The order in which your payments get applied matters more than most people realize. When you send money in, the government applies it first to any contingency fees owed to collection contractors, then to penalties, then to administrative costs, then to interest, and only last to principal.5eCFR. 31 CFR 901.9 – Interest, Penalties, and Administrative Costs On an older debt, early payments may not touch your principal at all.
Tax Refunds, Social Security, and Other Payments the Government Can Intercept
The Treasury Offset Program (TOP) is the broadest tool. Any federal agency has to notify Treasury about a non-tax debt that’s more than 120 days delinquent, and TOP then intercepts federal payments going to you and redirects them to the creditor agency.6Office of the Law Revision Counsel. 31 USC 3716 – Administrative Offset
Federal Tax Refunds
The seizure of your tax refund is the most common offset. Before it happens, the creditor agency has to give you at least 60 days to show that the debt isn’t past due or isn’t legally enforceable.7Office of the Law Revision Counsel. 31 USC 3720A – Reduction of Tax Refund by Amount of Debt If you file jointly and your spouse isn’t the one who owes the debt, your spouse can file an injured spouse claim with the IRS to recover their share.
Social Security and Other Benefits
Social Security benefits, Railroad Retirement benefits, and Black Lung benefits can all be offset, with one meaningful protection: the first $9,000 you receive in any 12-month period is exempt. That works out to $750 per month that TOP cannot touch.6Office of the Law Revision Counsel. 31 USC 3716 – Administrative Offset Federal retirement annuities, contractor payments, and travel reimbursements are also fair game. After an offset occurs, Treasury sends a written notice identifying the creditor agency and the amount taken.
Administrative Wage Garnishment
Administrative Wage Garnishment (AWG) lets a federal agency order your employer to withhold part of your paycheck without first going to court. The authority is in 31 U.S.C. 3720D, with details in 31 CFR 285.11.8Bureau of the Fiscal Service. Administrative Wage Garnishment Background AWG applies only to non-federal employees; federal workers are subject to a separate salary offset process.
Two caps limit each paycheck’s deduction, and your employer must use whichever one produces the smaller amount:9eCFR. 31 CFR 285.11 – Administrative Wage Garnishment
- 15 percent of your disposable pay (what’s left after health insurance premiums and legally required deductions like income tax and Social Security tax; court-ordered withholdings like child support are not subtracted first).
- The amount by which your weekly disposable pay exceeds 30 times the federal minimum wage. At $7.25 per hour, that floor is $217.50 per week.
If your weekly disposable pay is $300, the garnishment is the lesser of $45 (15 percent) or $82.50 ($300 minus $217.50), so the agency takes $45. If your weekly disposable pay is $240, the garnishment is the lesser of $36 or $22.50, so only $22.50 is withheld. An employer who ignores a garnishment order is personally liable for the amounts they should have withheld, plus attorney fees and possible punitive damages.10Office of the Law Revision Counsel. 31 USC 3720D – Garnishment
Credit Reports and the FHA, VA, and USDA Mortgage Block
Federal agencies are required to report delinquent debts to the consumer credit bureaus, so the debt will show up on your credit report and depress your score the same way an unpaid private debt would.11eCFR. 31 CFR 901.4 – Reporting Debts
Less visible, but often more painful: a delinquent federal debt disqualifies you from any federally backed mortgage. The government maintains the Credit Alert Verification Reporting System (CAIVRS), and lenders must check it before approving FHA, VA, or USDA loans. If your name is in CAIVRS, you cannot get those mortgages until the underlying debt is resolved by repayment, rehabilitation, or consolidation.12USDA Rural Development. CAIVRS Appendix 7 HUD, the VA, the Department of Education, the USDA, the SBA, and the FDIC all report into it.
Notice and Hearing Rights Before Collection Starts
The government cannot start garnishing or offsetting without first giving you notice and a chance to respond. The specifics depend on the tool.
Before an Administrative Offset
Under 31 U.S.C. 3716(a), the agency must give you:6Office of the Law Revision Counsel. 31 USC 3716 – Administrative Offset
- Written notice of the type and amount of the debt and the agency’s intent to collect by offset.
- A chance to inspect and copy the agency’s records on the debt.
- An internal review of the agency’s decision.
- An opportunity to enter into a written repayment agreement.
For tax refund offset specifically, you have at least 60 days from the notice to show the debt isn’t past due or isn’t legally enforceable.
Before a Wage Garnishment
The agency must mail written notice at least 30 days before the garnishment begins. The notice has to describe the debt, state the agency’s intent to garnish, and spell out your rights.10Office of the Law Revision Counsel. 31 USC 3720D – Garnishment You can request a hearing on three grounds: whether the debt exists, the amount, or the terms of the repayment schedule, which includes financial hardship.8Bureau of the Fiscal Service. Administrative Wage Garnishment Background
The 15-business-day deadline is the one to watch. If you file your hearing request within 15 business days of the date on the notice, the agency has to hold the hearing before sending the garnishment order to your employer. Miss that window and garnishment can begin while your request is still pending. The hearing may be oral or a paper review of documents, depending on whether the dispute turns on credibility.9eCFR. 31 CFR 285.11 – Administrative Wage Garnishment
The FDCPA Does Not Apply
One caution about the limits of your protection. The Fair Debt Collection Practices Act, which restricts how private debt collectors contact you, explicitly excludes federal officers and employees acting in their official capacity.13Federal Trade Commission. Fair Debt Collection Practices Act When BFS or its private contractors contact you about a federal debt, the FDCPA’s rules on call times, harassment, and third-party contact don’t apply. Your protection comes from the due process rights above, not from the FDCPA.
Settling or Setting Up a Payment Plan
Paying the full balance isn’t your only option. Federal agencies have authority to compromise a debt (accept less than the full amount) when the principal is $100,000 or less, excluding interest, penalties, and administrative costs. Larger compromises are handled by the Department of Justice.2Office of the Law Revision Counsel. 31 USC 3711 – Collection and Compromise of Claims14eCFR. 31 CFR Part 902 – Standards for the Compromise of Claims
An agency can agree to a compromise when:
- You cannot pay the full amount in a reasonable time, verified through credit reports or financial documentation.
- The government cannot collect the full amount through enforcement in a reasonable time.
- The cost of collecting exceeds the expected recovery.
- There is significant doubt the government can prove its case in court.
Once BFS is handling the debt, its private collection contractors can accept settlements up to 50 percent of the balance on their own authority. Higher offers, or offers on debts with principal above $500,000, need BFS or DOJ approval.3Bureau of the Fiscal Service. Frequently Asked Questions About the Cross-Servicing Program You can also propose a repayment plan at any stage, including before the debt is ever sent to BFS, and the agency has to consider it.
Why Waiting It Out Doesn’t Work
With a private creditor, letting the statute of limitations run is sometimes a viable strategy. With federal non-tax debt, it usually isn’t.
There are two time limits, and only one restricts the government. If the government wants to sue you in court to collect, it has to file within six years of when the right of action accrues, and a partial payment or written acknowledgment restarts that clock.15Office of the Law Revision Counsel. 28 USC 2415 – Time for Commencing Actions Brought by the United States But the same statute says explicitly that the six-year limit does not stop the government from collecting through administrative offset under 31 U.S.C. 3716.
What that means in practice: Treasury can intercept your tax refunds, your federal retirement, and the portion of your Social Security above the $9,000 annual exemption indefinitely. A student loan that defaulted twenty years ago can still trigger a tax refund offset this year. There is no clock to run out.
When the Government Takes You to Court
For large or actively contested debts, the final escalation is litigation. Agencies have to refer debts to the Department of Justice when they cannot be compromised and collection cannot be suspended or terminated, and debts with principal over $1,000,000 (excluding interest and penalties) must go to DOJ’s Civil Division.16eCFR. 31 CFR Part 904 – Referrals to the Department of Justice A court judgment brings asset seizure and property liens into play. For most people, though, it never gets that far: the administrative tools are efficient enough that courts are reserved for the biggest debts or cases where the debtor is actively fighting liability.