EIDL Loan Default Consequences: Can the Treasury Seize Your Personal Tax Refund?

TL;DR: Yes. Once a defaulted COVID-era EIDL loan is referred to the Treasury, the government can take your federal tax refund without a lawsuit or a court judgment, and it can order your employer to withhold up to 15 percent of your pay. You are entitled to written notice and a chance to dispute first, so the letters matter. Collection costs get added to the balance, and there is no time limit on refund offset. Whether the debt can reach you personally depends on how the loan was signed and how big it was.

What changed with EIDL collections?

The SBA started sending old COVID loans to Treasury in volume. On April 24, 2026, the SBA announced it had sent "562,000 Suspected Fraudulent Loans to Treasury for Collections," and said the borrowers "are tied to $22.2 billion in delinquent Paycheck Protection Program (PPP) and COVID Economic Injury Disaster (EIDL) loans that were previously flagged for suspected fraud."

That batch was the suspected-fraud pile. Ordinary delinquent loans move too. The SBA's own EIDL servicing page warns that a loan can be referred to Treasury once it reaches 120 days of delinquency. If you took an EIDL loan years ago and stopped paying, assume it has moved or will.

Treasury collects differently than the SBA did. Its tools are administrative: refund offset, wage garnishment and offset of other federal payments. On our episode with Phillip Zagotti, he explained that Treasury also hands accounts to private collection companies, which mostly offer a payment plan or ask for payment in full.

Can Treasury take my tax refund without suing me?

Yes, but not without notice. Under 31 U.S.C. 3716, an agency can collect a debt by administrative offset, which means no court is involved. Before a tax refund can be taken, 31 U.S.C. 3720A(b) requires the agency to "notify the person" and "give such person at least 60 days to present evidence that all or part of such debt is not past-due or not legally enforceable."

After that window, Treasury can take the refund before it reaches you. The IRS explains in Tax Topic 203 that the Bureau of the Fiscal Service "will mail you a notice" showing what was taken and which agency the money went to.

Two more rules surprise people. First, wage garnishment is a separate tool. The Fiscal Service says a federal agency "can order an employer to withhold up to 15 percent of an employee's pay." Second, there is no clock running out on refund offset. Section 3716(e) says there is "no limitation on the period within which an offset may be initiated."

How much does referral to Treasury add to the balance?

The law says costs are charged. Treasury's own manual for these accounts says 31 U.S.C. 3717(e) "requires creditor agencies to charge the debtor for the costs of processing and handling transferred debts." Treasury does not publish a single fee percentage. Phillip put the add-on he sees at about 28 to 30 percent, and said it largely pays the private collectors. Your Treasury notice shows the actual amount on your account.

Am I personally liable for my EIDL loan?

It depends on the loan size and on who signed. The SBA's COVID EIDL FAQ set these tiers:

• $25,000 or less: no collateral required.
• $25,001 to $500,000: a security agreement (UCC-1 lien) on business assets.
• $200,000 or less: no personal guaranty required.
• Over $200,000: a full personal guaranty from every owner of 20 percent or more.

Entity type matters as much as size. A sole proprietor is the borrower, so the loan is personal at any amount. General partners can be personally liable under state partnership law. Phillip also flagged a real problem he sees in practice: loans where the paperwork named the owner personally instead of the LLC. Read your Loan Authorization and Agreement to see exactly who signed and in what capacity.

What should I do if I have an old EIDL loan?

Find out where it is, then act inside the windows the law gives you. This is general education, so take the specifics to your own attorney or tax professional.

1. Check the SBA Loan Portal. The SBA says to use the portal to monitor the status of a COVID EIDL loan. If it shows as referred, Treasury's offset line at 800-304-3107 can confirm whether a debt is on file in your name.
2. Get your loan documents. Download your Loan Authorization from the portal while you can. Federal law also gives you the right to inspect and copy the agency's records on the debt.
3. Calendar every deadline in every letter. The 60-day dispute window before refund offset and the hearing rights before wage garnishment are where your options live.
4. Act before referral if you can. The SBA says a charged-off loan not yet sent to Treasury can be reinstated by paying the past-due amount through the portal. Once Treasury has the loan, the SBA says "The SBA will not be able to assist you," and you deal with Treasury directly. The SBA pulls a debt back only in limited cases, such as an error in the debt or a bankruptcy filing.

The short version

An unpaid EIDL loan does not age out. Treasury can take a refund years from now with no lawsuit, so the cheapest time to deal with it is before the next letter arrives. Phillip's advice on the episode was simple: don't sit on it, and don't raid your retirement accounts or take a home equity loan in a panic to pay it. Hear his full breakdown in the episode with Phillip Zagotti.

If you want help finding the right tax resolution attorney for a situation like this, call me at 770-224-8504, option two. No obligation and no pitch.

This article is educational and is not tax, legal, or accounting advice. Every situation is different; work with a qualified attorney or tax professional before acting on anything described here.