Yes. If your spouse has tax liability, you may need to take steps to protect your tax refund and avoid liability. The effects of your spouse’s tax liability will depend on when the liability was incurred, how you file your taxes, and other factors.
Additionally, the Internal Revenue Service (IRS) must follow certain rules and provide relief when appropriate.
Liability incurred before, during, and after marriage
Any tax liability your spouse incurred before you got married belongs to your spouse alone. If the IRS intercepts your tax refund, you can apply for Injured Spouse Status and get it back.
You may be liable for tax debt incurred during your marriage – unless you take steps to limit your liability. You can protect yourself by filing separately or applying for Innocent Spouse Status.
Divorce frees you from tax debt your spouse incurs after your marriage. If your divorce has not been finalized, be sure to file separately. You can also assume partial liability by applying for Separation of Liability.
Filing separately to limit your liability
Married couples can decide to file jointly or file separately. If you file jointly, you both become responsible for each other’s taxes, debt, and penalties for the year you file. This is called “joint and several liability.”
Although filing jointly comes with certain tax benefits, filing separately helps ensure you will not be liable for your spouse’s tax bill. If you know your spouse has tax debt or back taxes, you may want to file separately.
Otherwise, the IRS may seize your refund to help pay your spouse’s tax debt, and you will have to apply for Injured Spouse Status or Innocent Spouse Status to get your money back.
Can the IRS seize my house or assets when my spouse owes money?
Yes. If you filed jointly, the IRS could seize your assets – even if your spouse is the one who owes money. The IRS knows that you and your spouse share assets and liabilities, and they do not make a distinction, especially if you file together.
Fortunately, the IRS is more likely to garnish wages or issue a tax lien than it is to seize your house or physical property.
If you do not want the IRS involved in your bank account or other assets, file separately and keep certain assets in your name.
Can my spouse’s liability affect my tax refund?
Yes. If you file jointly, and your spouse owes tax debt, your tax refund will be the first asset the IRS seizes. File separately if you do not want your spouse’s debt to affect your tax refund. If the IRS makes a mistake and seizes your tax refund, anyways, there are steps you can take to remedy the situation.
Disputing liability of my spouse’s back taxes
While you can become liable for your spouse’s back taxes in certain situations, you can also dispute your liability. After all, any tax debt your spouse incurs before you get married belongs to your spouse alone.
You can get your tax refund back and protect your assets with innocent spouse relief and injured spouse relief
What is innocent spouse relief?
Innocent spouse relief saves one spouse from liability when the other deliberately lied to the federal government to decrease their taxes. Essentially, if one spouse commits a crime on a joint tax return, but the other spouse is innocent, only the “guilty” spouse will be punished.
Who qualifies for innocent spouse relief?
- You filed a joint return that has an understatement of tax that is solely attributable to your spouse’s erroneous item (see below).
- At the time you signed the joint return, you did not know and had no reason to know what your spouse did.
- It would be unfair to hold you liable for the understatement of tax.
For example, you might not know exactly how much money your spouse makes, so you would not notice if they underreported their income to avoid taxes. Because you did not know what your spouse was doing and believed the forms you signed to be correct, you should not be punished for filing a joint return with them.
What are erroneous items?
Erroneous items include income received by your spouse but omitted from your joint return and any improper deduction, credit, or property basis claimed by your spouse.
Partial relief when a portion of an erroneous item is unknown
According to the IRS, “You may qualify for partial relief if, at the time you filed your return, you had no knowledge or reason to know of only a portion of an erroneous item.”
For example, consider you and your spouse go to Vegas and gamble. You win $5,000 together and decide not to report your winnings on your tax return. After you went to bed in Vegas, however, your husband snuck out and won $3,000 additional. You will be liable for the $5,000 you knew about, but you will not be liable for the $3,000 you didn’t know about.
What is injured spouse relief?
Injured spouse relief applies when the IRS takes one spouse’s share of a joint refund to pay another spouse’s back taxes. You are not responsible for past-due obligations your spouse acquired before the marriage, so you can file a Form 8379 to get your tax return back.
Who qualifies for injured spouse relief?
Spouses who receive a Notice of Offset qualify for Injured Spouse Relief. If you receive this form, you can reply with Form 8379.
To avoid any confusion, you can always file separately if you know your spouse has back taxes you do not want to be responsible for.
When to talk to a lawyer
Fighting the IRS can be challenging, even under ideal conditions. Discovering your spouse lied to you and the federal government is far from ideal.
If you are facing liability for something your spouse did, talking to a lawyer is a good idea.
Damiens Law Firm, PLLC offers free consultations to help you understand your rights and legal options. We are ready to fight for you when tax debt threatens your future.