A married couple is seen as a singular entity in the eyes of the law, sharing assets, property, income and debts. However, the government sees spouses as single entities when it comes to tax debt. After all, your marital vows didn’t include a promise to “love, honor, cherish…and pay their tax debt.” Here are some ways you can protect your tax refund from tax debt collection when your spouse owes on a tax debt.
Change Your Filing Status
You can elect to file your return as “married filing separately” to protect any refund from your spouse’s tax debt collection. Downside: You may lose out on EIC credit and your refund could be less under the “married filing separately” option.
The Injured Spouse is one way you can protect your upcoming tax refund. This option ensures your tax refund will be issued to you and not to you and your spouse as a whole. Here are some of the criteria for the Injured Spouse option
- Proof that the tax debt occured before your marriage.
- You’re entitled to the EIC credit as a couple
- Paying the tax debt would cause undue financial hardship, e.g. unable to pay rent and tax debt at the same time
- The debt is owed because of your spouse’s outstanding student loan, child support or spousal support obligation.
If you and your spouse elect to use this option and are filing a paper return, you must write “injured spouse” at the top of your returns and then complete IRS form 8379 at the same time.
Innocent Spouse Option
If the Injured Spouse option isn’t a possibility in your case, you can try to utilize the Innocent Spouse option. This option can apply under the following circumstances:
- The court has ordered your spouse to pay their ex-spouse’s outstanding debt.
- The tax debt occurred before you and your spouse were married
- Divorce due to domestic abuse
- Paying the tax debt would create an extraordinary financial hardship for both of you.
- One of you doesn’t speak English as your primary language.
Change Your Withholding Status
By changing your withholding status, or the number of exemptions claimed on your taxes, you are reducing the amount of your refund. At the same time, the government will withhold more taxes from your take-home pay. Increasing your exemptions would mean less taxes deducted from your pay.
There is no simple solution for avoiding liability for a spouse’s outstanding tax debt; the options above are just a few of the ways you can take action to avoid being liable for your spouse’s tax debt.
As with any tax matter, a qualified tax pro will able to fully assess your tax scenario, and offer you the best options based on your and your spouse’s unique circumstances.
Marraige can mean sharing many moments together, both good and bad. It doesn’t have to mean sharing your spouse’s tax debt. We have tax pros on staff who can help you both decide which option is best for your unique situation.
Get started today by clicking the white “Start Chat” button in the upper right-hand corner of any of our webpages. You don’t need to go it alone. We can help.