it depends. If the bank does not have your social security number (SSN) they are required to withhold federal tax and submit it to the IRS like an employer does with your wages. If that is the case then they would report that amount to your on your Form 1099-INT in box 4. When you enter the interest in your tax return, then you would also enter the federal tax withholding.
When you enter your form be sure to select the check box beside 'My form has info in other boxes (this is uncommon).'
If you are referring to a delinquent debt, where the IRS keeps some of your refund to pay it, the bank would not hold any of your funds for that purpose.
- IRS will withhold refunds to pay the following delinquent debts:
- student loans, VA loans, federally sponsored loans, federal or state tax debt, alimony or child support and certain other debts.
- IRS Topic 203 - Reduced Refunds
@TaxTheFish
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