Tax Debt From a Spouse

Staff Writer
January 10, 2019

  • Typically treated as a single unit, married couples can still separate their assets and liabilities for tax filing purposes.
  • Your liability for your spouse’s debt will be determined by your relationship status and how you filed your taxes. 
  • Several filing strategies can help you protect your assets from being garnished because of your spouse’s debt.

In terms of the law, married couples are deemed as a single unit with shared income, assets, and liabilities. However, in the tax filing process, the distinction might be made between the two individuals, particularly when one spouse owes back taxes. Whether you are liable for your spouse’s taxes will depend on the status of your relationship when the debt was incurred and how you filed your tax return.

Even if you are not technically liable for your spouse’s debt, the IRS could still garnish your tax refund to pay for your spouse’s back taxes. If you don’t want to use your joint refund to repay tax debt, you can resort to other strategies to safeguard your personal tax return.

Married Filing Jointly Versus Married Filing Separately

Married couples could file their taxes jointly and assume joint liability for the debt, or they could file separate tax returns where each spouse takes responsibility for their own debt.

Tax Debt From a Spouse

Many couples choose the married filing separately option, so they could protect at least one of the spouse’s refunds if the other spouse owes back taxes. However, doing so might not be the best strategy for everyone. Although it might make sense to file separately until your spouse’s debt is cleared, when the debt was incurred before your marriage, you should probably run some numbers to see if it will benefit your case.

Note that by filing separately, the couple might not be eligible for certain deductions, such as the EIC (earned income credit). In addition, the amount of their refunds goes down compared to the married filing jointly option.

Change in the Number of Exemptions

Changing the number of exemptions that you claim on your income is the easiest thing to do to protect your own tax refund when your spouse owes back taxes. More taxes will be withheld from your paycheck if you claim fewer exemptions. The opposite is true with a higher number of exemptions.

Note that you might not get a tax refund at the end of the year by claiming more exemptions, but you will take home more income with every paycheck. With fewer exemptions, you will have less income coming in, but you could have peace of mind that you won’t owe taxes come April. Carefully evaluate both options and figure out which one will work better for your situation.

When to Apply for Injured Spouse Status

Your spouse’s tax debt from before you got married is solely their responsibility. If the IRS used your tax refund to pay for your spouse’s debt, you might be eligible for “Injured Spouse” status. Even if you filed jointly, you might be able to get your portion of the refund back.

To qualify for this option, you must meet the following criteria:

  • The debt must have occurred before the couple got officially married.
  • The other spouse’s debt is in the form of outstanding child or spousal support or student loan.
  • The couple are eligible for the EIC (earned income credit).
  • Paying your spouse’s debt would be unfair and will lead to financial hardship.

When submitting a paper return, make sure to write down “Injured Spouse” at the top of the return and attach Form 8379, Injured Spouse Allocation.

When to Apply for Innocent Spouse Status

If you filed jointly when your spouse incurred the debt, your liability will depend on whether you knew about the issues that resulted in debt, whether you are still together, and whether you reaped any benefits from the fraudulent tax return. If you can provide proof, not counting willful ignorance, that you knew nothing about any issues with the filing and that you didn’t benefit from it, you could qualify for an “Innocent Spouse” status. If your evidence is sufficient and you are granted the innocent spouse status, you will be relieved of any liability. Unfortunately, you won’t receive any refund for that year.

The innocent spouse option may be applicable to one of the following situations:

  • The debt belongs to only one of the spouses and was incurred before the marriage.
  • The couple can show that they will experience financial hardship by repaying the debt.
  • The couple is divorcing because of spousal abuse.
  • English is a not a first language for one of the spouses.
  • The court ordered one of the spouses to pay the debt owed by the other spouse.

To apply for innocent spouse status, it is best to recruit a tax professional proficient in this area of law and its intricacies.

Separation of Liability Relief

If you filed jointly although you are separated, you may qualify for “Separation of Liability Relief” by proving that you are divorced, legally separated, or have lived apart for at least 12 months prior to filing. With this status, you both will be partially liable for the debt.

What to Expect During Qualification Process

Before you are granted any of the above statuses, the IRS will conduct a thorough investigation into your personal life looking for evidence of significant benefit. To make sure you didn’t benefit from understated taxes, the IRS will search for any gifts or valuables that you might have received as a result of your spouse’s understated taxes. You should be prepared for your life to be scrutinized and inspected very closely. The IRS might interview your spouse for another side of the story, as well.

Whether you are married, divorced, or looking to get married, it’s a good idea to learn about each other’s financial situation beforehand to eliminate any unpleasant surprises and issues with the IRS. Depending on your particular case, you may or may not be liable for your spouse’s debt. All couples should know about various strategies to help them safeguard their returns and keep as much income as possible in the family.

If you are in a difficult situation with the IRS, consider hiring a tax debt professional. Consult with our debt specialists at Solvable where we can help you resolve any debt issues you might have. With our extensive resources and debt management tools, we’ll make your journey out of debt as quick as possible.