Yes, you can receive a tax refund if you are currently making payments under an installment agreement or payment plan for another federal tax period, but there are specific conditions and limitations.
- Application of Refund to Outstanding Liabilities: According to § 6402(a) of the Internal Revenue Code, if you have an overpayment, the Secretary may credit the amount of such overpayment against any liability in respect of an internal revenue tax on the part of the person who made the overpayment. This means that if you have an outstanding tax liability, the IRS will first apply your refund to that liability before issuing any remaining balance to you.
- Installment Agreement Terms: The IRS FAQ clarifies that one of the conditions of an installment agreement is that the IRS will automatically apply any refund (or overpayment) due to you against taxes you owe. Therefore, if you are under an installment agreement, your refund will be used to reduce your outstanding tax debt.
- Excess Refund: If your refund exceeds your total balance due on all outstanding tax liabilities, including accruals, you will receive a refund of the excess amount. However, this is contingent upon not owing other past-due amounts such as state income tax, child support, student loans, or other federal non-tax obligations, which can also be offset against any refund.
- Offset Provisions: Under § 6402(c), (d), (e), and (f), the IRS is required to offset your refund against certain debts before issuing any remaining balance. These debts include past-due support, legally enforceable debts to federal agencies, state income tax obligations, and covered unemployment compensation debts.
- Notification: If your refund is offset against any debts, the IRS will notify you of the amount of the offset and the remaining balance, if any, that will be refunded to you.
In summary, while you can receive a tax refund while making payments under an installment agreement or payment plan for another federal tax period, the IRS will first apply your refund to any outstanding tax liabilities and other qualifying debts before issuing any remaining balance to you.
Sources:
Publication 3598 (11/2023)
§ 6402. Authority to make credits or refunds
CCA 200124019
Publication 556
Publication 1380
CCA 200133045
