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PAGE ONE Economics

®

Treasury Offset Program
to the Rescue
Barbara Flowers, Economic Education Coordinator

GLOSSARY
Budget deficit: Government spending
(expenditures) exceeds government
revenue (from taxes and fees) for a given
period, usually a fiscal year.
Budget surplus: Government revenue (from
taxes and fees) exceeds government
spending (expenditures) for a given period,
usually a fiscal year.
Defined-benefit retirement funds: Money
for retirement maintained by the government for government employees.
Gross income: The total amount earned
before any adjustments are subtracted.
Recession: A period of declining real income
and rising unemployment; significant
decline in general economic activity
extending over a period of time.
Supplemental Nutrition Assistance
Program (SNAP): A government program
that helps low-income individuals and
households purchase food. Formerly
known as food stamps, the program now
uses electronic swipe cards.
Unemployment compensation: A program
providing cash benefits for a specified
period of time to workers who lose a job
through no fault of their own. Also known
as unemployment insurance.

“The simple premise of the offset program is that as Treasury we should
not pay those individuals or businesses that have failed to meet their
government obligations without first applying that money to the
delinquent obligation.”1
—Sheryl Morrow, Commissioner of the Bureau of the Fiscal Service of the
U.S. Department of the Treasury

What happens when your expenses are greater than your income? If you
don’t have savings to make up the difference and it happens for a sustained
period of time, you could end up with quite a bit of debt. This can happen
to individuals, families, businesses, communities, or even large governments
(such as the United States).
The U.S. government’s debt has been increasing over the years (see the
boxed insert “U.S. Government Debt to the Penny”). You can think of the
U.S. debt as being an accumulation of years of budget deficits. With only
a blip of budget surpluses between 1998 and 2001 and the relatively small
surpluses in 1960 and 1969, the United States has run budget deficits each
year since 1958. Budget deficits occur when the government’s expenses
are greater than its income. In 2016, the U.S. budget deficit was $584 billion.2 There are reasons why a country might have a budget deficit. For
example, if the country’s economy is in recession, many people who would
ordinarily pay income tax may have lost their jobs—and their incomes.
The loss of income tax revenue reduces the government’s income. At the
same time, people who have lost their jobs during a recession will request
aid from the government, such as unemployment compensation or food
stamps (through the Supple­mental Nutrition Assistance Program [SNAP]).
Such help becomes added expenses for the government.
If the economy of the country is strong, but the country still maintains a
budget deficit, then the country is either spending too much or taxing too
little. In the United States, spending and taxing decisions are made by our
representatives in Congress. Decisions to raise taxes are difficult because
it means that after paying their taxes, people will have less of their money
available to buy the goods and services they want. However, decisions to
cut spending are also difficult because it means that people will have fewer

October 2017	

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U.S. Government Debt to the Penny
Data date

Total public debt outstanding

Debt held by the public

Intragovernmental holding

9/6/2017

$19,844,332,397,358.53

$14,411,300,801,153.53

$5,433,031,596,205.00

SOURCE: U.S. Department of the Treasury. Transparency.Treasury.gov; https://www.transparency.treasury.gov/dataset/debt-to-the-penny/table-view,
accessed, September 8, 2017.

As of September 6, 2017, the U.S. total public debt outstanding was over $19 trillion. About $14.4 trillion is debt held by the public, which
consists of federal debt held by individuals, local governments, corporations, and other entities, and about $5.4 trillion is debt held within
the government, such as money for federal government employee defined-benefit retirement funds.
SOURCE: Cagetti, M.; Hoops, M.; McIntosh, S. and Ogden, R. “Federal Debt in the Financial Accounts of the United States.” Board of Governors of the Federal
Reserve System FEDS Notes, October 8, 2015;
https://www.federalreserve.gov/econresdata/notes/feds-notes/2015/federal-debt-in-the-financial-accounts-of-the-united-states-20151008.html.

government-provided programs they want or enjoy, such
as national parks, museums, unemployment compensation, or health care.
While Congress grapples with issues of spending and
taxing, it is up to those who work in government to be
watchful stewards of government spending and revenue.
The U.S. Department of the Treasury plays the largest role
in managing the finances of the federal government.
Among its many financial functions, the Treasury collects
taxes, duties, and monies paid to and due to the United
States; pays all bills of the United States; and raises money
to finance government operations through the sale of
Treasury securities.3 One way it collects money owed to
the federal government is through the Treasury Offset
Program (TOP), which is operated by the Bureau of the
Fiscal Service. While TOP benefits the federal government,
it also benefits state governments and individuals.

How an Offset Works
An offset is the reduction or withholding of a payment.4
An offset may be used to help an individual pay off money
they owe to the government or an individual. There are
several circumstances when TOP may initiate an offset, and
most offsets are from federal tax refunds.
When workers are paid, part of their wages are withheld to
pay federal income tax. Each year, workers send a tax
return to the federal government reporting their gross
income and the amount of their income that was withheld
that year and sent to the government to pay their taxes. A
tax return includes information about the worker’s number

of dependents, child-care payments, and/or savings in a
retirement plan. This and other financial information as
well as the worker’s income determine how much income
tax the worker owes. If the total amount withheld from the
worker’s paycheck is less than what the worker owes, the
worker will have to pay the government more. If the total
amount withheld is enough, the worker will not owe additional taxes. If the worker paid more than necessary, the
worker is eligible for a refund. If the worker owes taxes to
the federal government or a state or money for child support, an offset could occur.

Child Support and TOP
For example, suppose someone is owed a tax refund
but that person is also a parent who has been ordered
to pay child support and has not been faithful in making
those payments. TOP, through the U.S. Department of
the Treasury, Bureau of the Fiscal Service, can collect the
child support from the delinquent parent by withholding
all or part of the parent’s income tax refund. The Treasury
office sends the money to the Office of Child Support
Enforcement, which forwards the money to the child
support agency in the state where the child lives. That
office then sends the money to the custodial parent.5

The Supplemental Nutrition Assistance Program (SNAP) and TOP
This cooperation between states and the federal government extends to other programs. For example, people
who have received SNAP benefits greater than the
amount they were eligible to receive will either have
future benefits reduced or, if they are no longer receiving

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Figure 1
TOP Collections: State and Federal Agencies

SOURCE: U.S. Department of the Treasury. Transparency.Treasury.gov;
https://www.transparency.treasury.gov/dataset/treasury-offset-program/offset-collections, accessed August 25, 2017.

SNAP benefits, have to pay the money back.6 TOP will
intercept all or part of any tax refunds due to people who
owe money to SNAP and redirect it to the states that
issued the SNAP benefits.

Unemployment Compensation and TOP
Individuals who have lost their job through no fault of
their own are usually eligible to receive unemployment
compensation. There are rules that these individuals must
follow. One rule is that people who are receiving unemployment compensation must report any earnings they
receive from any kind of work. The amount someone
can earn while still receiving benefits varies by state.7
When someone receives earnings but does not report
them, that person is breaking his or her agreement with
the state’s unemployment office. If such activity is discovered, the state will ask that the excess money received
be returned. If the state cannot collect this money from
individuals who understated their earnings, the federal
tax refunds (if any) of those individuals will be redirected
to the state’s unemployment office.

State Income Tax and TOP
After collections for child support, the next-highest collections by TOP are for state income taxes. TOPS cross-

checks to see whether individuals or businesses who are
delinquent in paying their state income taxes are due a
federal tax refund. If they are, the refund is diverted in
whole or in part to the state. In fiscal year (FY) 2016,
New York was the largest beneficiary of this program,
with nearly $82 million returned to the state, followed
by Maryland with nearly $60 million.8
In just 16 years, TOP has grown from collecting a little
over $2.6 billion in FY 2000 to more than $7 billion in
FY 2016 (see Figure 1).
The states receive enormous benefits from TOP. For example, in FY 2016, $33.4 million was returned to Arkansas,
with more than half ($18.3 million) in recovered child
support.9 In FY 2015, California was refunded a whopping
$441.6 million, with $197.5 million in collections for fraudulent unemployment compensation claims.10
Illinois augmented its revenue by $110.5 million in FY 2016
by participating in TOP (see Figure 2).
Each state, Washington D.C., and the territories of Puerto
Rico, Guam, and the U.S. Virgin Islands participate in the
program. Of the $7 billion collected in FY 2016, the total
collections directed to the states were over $3 billion.11

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Figure 2
TOP Collections for Illinois (amounts in millions)

NOTE: State Reciprocal refers to a program where states collect debts due to the federal government. For example, the state might offset an individual’s state income tax refund to pay all or part of that individual’s federal income tax debt. The Income Tax Program recovers state income tax.
SOURCE: U.S. Department of the Treasury. Transparency.Treasury.gov;
https://www.transparency.treasury.gov/dataset/treasury-offset-program/collection-locations, accessed August 25, 2017.

Nine states participate in all five of the TOP state programs: the Child Support Program; the State Income Tax
Program; SNAP; the Unemployment Insurance Program;
and the State Reciprocal Program, which is a program
that sends the money in the opposite direction—from a
state to the federal government (see Figure 3 and the
table). States participating in the reciprocal program
essentially support taxpayers by diverting refunds that
would go to individuals and corporations that owe money
to the federal government.

Conclusion
The federal government and some state governments
run budget deficits. Persistent budget deficits can become
burdensome debt. The Treasury Offset Program provides
revenue for the federal government and state governments that can augment their budgets. In addition, the
program helps taxpayers by forcing individuals and corporations with delinquent taxes to pay their fair share,
and it helps custodial parents and guardians receive
support to help raise the children in their charge. n

Notes
1

U.S. Department of the Treasury, Bureau of the Fiscal Service. “U.S. Treasury
Collects More Than $3 Billion in Delinquent Debts for States Including $1.9 Billion
in Delinquent Child Support.” News release, April 20, 2016;
https://fiscal.treasury.gov/fsnews/2016/debts_states.htm.
2

White House, Office of Management and Budget. “Historical Tables: Table
1.1-­Summary of Receipts, Outlays, and Surpluses or Deficits (-): 1789-2022.”
https://www.whitehouse.gov/omb/budget/Historicals, accessed August 25, 2017.
3

U.S. Department of the Treasury. “Duties and Functions of the U.S. Department
of the Treasury.” April 22, 2016, 2:03 PM update;
https://www.treasury.gov/about/role-of-treasury/Pages/default.aspx.
4

U.S. Department of the Treasury, Bureau of the Fiscal Service. “Treasury Offset
Program (TOP) Child-Support Enforcement.”
https://fiscal.treasury.gov/fsservices/gov/debtColl/dms/top/chldSprtEnforcmnt/
debt_top_childsupport.htm, accessed August 25, 2017.
5 U.S. Department of Health and Human Services, Office of Child Support Enforce­

ment, Administration for Children and Families. “How Does the Federal Tax Refund
Offset Program Work?” April 26, 2017, version; https://www.acf.hhs.gov/css/faq/
how-does-the-federal-tax-refund-offset-program-work.
6

Illinois Legal Aid Online. “Overpayment of SNAP Benefits.”
https://www.illinoislegalaid.org/legal-information/overpayment-snap-benefits,
accessed August 25, 2017.
7

Petersen, Lainie. “How Much Can You Earn & Still Collect Unemployment?”
Chron; http://work.chron.com/much-can-earn-still-collect-unemployment-14877.html, accessed August 25, 2017.

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Figure 3
Total of All TOP Programs: Fiscal Year 2016 (dollar amounts in millions)

NOTE: Participation refers to the number of states and territories in the given program. State Reciprocal refers to a program where states collect
debts due to the federal government. For example, the state might offset an individual’s state income tax refund to pay all or part of that individual’s
federal income tax debt. The Income Tax Program recovers state income tax.
SOURCE: U.S. Department of the Treasury. Transparency.Treasury.gov;
https://www.transparency.treasury.gov/dataset/treasury-offset-program/state-programs-participation, accessed August 25, 2017.

States participating in all 5
TOP state programs, 2016

Total offsets (millions)

Kentucky

$69.6

Louisiana

$72.8

Maryland

$106.8

Minnesota

$45.8

New Jersey

$102.9

New York

$185.6

Oregon

$41.1

West Virginia

$28.4

Wisconsin

$65.1

SOURCE: U.S. Department of the Treasury. Transparency.Treasury.gov;
https://www.transparency.treasury.gov/dataset/treasury-offset-program/state-programs-participation, accessed August 25, 2017.

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U.S. Department of the Treasury. Transparency.Treasury.gov. “Treasury Offset
Program: State Programs – Collection, Income Tax Program: Fiscal Year 2016.”
https://www.transparency.treasury.gov/dataset/treasury-offset-program/
state-programs-collection, accessed August 25, 2017.
9

U.S. Department of the Treasury. Transparency.Treasury.gov. “Treasury Offset
Program: State Programs – Locations, Collections for Arkansas.”
https://www.transparency.treasury.gov/dataset/treasury-offset-program/collection-locations, accessed August 25, 2017.
10

U.S. Department of the Treasury. Transparency.Treasury.gov. “Treasury Offset
Program: State Programs – Locations. Collections for California.”
https://www.transparency.treasury.gov/dataset/treasury-offset-program/collection-locations, accessed August 25, 2017.
11

U.S. Department of the Treasury. Transparency.Treasury.gov. “Treasury Offset
Program: State Programs – Collection, Total – All Programs: Fiscal Year 2016.”
https://www.transparency.treasury.gov/dataset/treasury-offset-program/
state-programs-collection, accessed August 25, 2017.

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Name___________________________________ Period_______
Federal Reserve Bank of St. Louis Page One Economics ®:
“Treasury Offset Program to the Rescue”

After reading the article, complete the following:
1.	 When a country’s economy is in recession, will each of the following go up or down? Circle the correct answers.
	

a.	 Employment ↑ ↓

	

b.	 Unemployment ↑ ↓

	

c.	 Incomes ↑ ↓

	

d.	 Income tax revenue ↑ ↓

	

e.	 Unemployment compensation ↑ ↓

	

f.	 SNAP benefits ↑ ↓

2.	 What are two reasons why a country’s economy might have a budget deficit even when the economy is strong?

3.	 What are some of the financial functions of the U.S. Department of the Treasury?

4.	 How does the Treasury Offset Program (TOP) correct delinquent child support?

5.	 How does TOP recover overpayments in unemployment compensation? How might overpayments occur?

6.	 By how many dollars and what percentage has TOP grown since FY 2000?

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7.	 Use the graphs of TOP collections for Missouri, Arkansas, Kentucky, and Tennessee to answer the questions below.

NOTE: State Reciprocal refers to a program where states collect debts due to the federal government. For example, the state might offset an individual’s state
income tax refund to pay all or part of that individual’s federal income tax debt. The Income Tax Program recovers state income tax. FY is fiscal year.
SOURCE: U.S. Department of the Treasury. Transparency.Treasury.gov; https://www.transparency.treasury.gov/dataset/treasury-offset-program/collection-locations,
accessed August 25, 2017.

To see exact dollar amounts, go to Transparency.Treasury.gov/dataset/treasury-offset-program/collection-locations
and use the menu to choose each state noted above. Drag your cursor over the graphs to get the exact dollar amounts.
	

a.	 For which state was the largest amount of unemployment insurance compensation recovered in FY 2016?

	

b.	 For which state was the largest amount of SNAP funds recovered in FY 2016?

	

c.	 For which state was the largest amount of state income tax recovered in FY 2016?

	

d.	 What might explain why Tennessee recovered no money through the Income Tax Program?

	

e.	 Which state recovered the most money through TOP in FY 2016?


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