I owe prior year federal income tax liabilities, will my rebate check be affected?
If a taxpayer is eligible for a tax rebate, but he or she owes prior year federal income tax liabilities, then the IRS will first apply the refund to offset the prior years federal income tax liabilities. If there is a balance left over, the IRS will send a reduced rebate check.
In the event, the entire rebate check cannot offset the tax liability, the entire rebate check will be used to pay the outstanding tax liability and the taxpayer will not get any tax rebate!
The IRS would actually notify the taxpayer as to how the IRS has applied the refund.