Your spouse owing money back on taxes could cause significant tax problems. You can fix the situation by changing the number of exemptions when filing, utilizing the innocent spouse or injured spouse option or by filing separately.
How do you know if you qualify for spouse relief? You may do so if you file a joint return and all or part of your refund is applied against your spouses’ past-due federal tax, state income tax, child or spousal support or federal nontax debt, such as a student loan.
The International Revenue Service offers relief in either of the below cases:
- Innocent Spouse Relief provides you relief from additional tax you owe if your spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits. You must first submit a completed Form 8857.
- Separation of Liability Relief provides for the separate allocation of additional tax owed between you and your former spouse or your current spouse you’re legally separated from or not living with, when an item wasn’t reported properly on a joint return. You’re then responsible for the amount of tax allocated to you.
- Equitable Relief may apply when you don’t qualify for innocent spouse relief or separation of liability relief for something not reported properly on a joint return and generally attributable to your spouse. You may also qualify for equitable relief if the amount of tax reported is correct on your joint return but the tax wasn’t paid with the return.
To prevent losing a refund to back taxes, a Married Filing Joint return will produce a lower tax liability, than two Married Filing Separately returns. A lower tax liability will mean a greater tax refund.
An injured/innocent spouse claim will give the IRS enough data for them to split the refund between the two contributing parties which will protect the non-debtor’s refund from garnishment to pay the debts of the debtor spouse. See Form 8379 for necessary information regarding innocent spouse allocation.
Some say the easiest way would be to adjust your exemptions. This means that the government would withhold more taxes out of each paycheck if the number is lowered, but less taxes are withheld if the number is increased.
Each has its benefits and potential pitfalls, so it is important to weigh out your options. We recommend seeking professional help for your tax services.