Question: I owed the IRS taxes in 2007 and have set up a payment plan.  When I file my 2008 return next year I will be due a refund.  Will I get my full refund since I am on a payment plan for my 2007 taxes?

Answer: The short answer is no.  Whenever you have a tax liability with the IRS they are going to keep any funds that you are due whether it is from a tax refund or a payment like the recent stimulus check that went out to many taxpayers.  The good news is that the money will be applied to your 2007 liability and reduce that so you will not have to make your payments as long.

If you still owe a significant amount for 2007 and you are going to be on a payment plan for several years I would suggest that you adjust your W-4 with your employer so that only your tax liability will be withheld and not extra so you will not be entitled to a refund at the end of the year.  That way, the IRS gets only the tax you owe and you keep the money during the year rather than waiting on a refund at the end of the year.