When you marry, you often share many aspects of your life with your spouse: your home, your finances, and perhaps even your dreams. However, what happens when it comes to tax liabilities? Specifically, are you responsible for your spouse’s back taxes? This question can cause significant stress and confusion. To navigate this issue, it is essential to understand the various scenarios and laws that come into play. Here, we’ll explore the factors that determine liability and the potential consequences for both parties involved.
Understanding Back Taxes
Back taxes are taxes that have been partially or completely unpaid in the year they were due. They can accrue interest and penalties over time, leading to a larger debt. The IRS and state tax authorities are vigilant about collecting these taxes, and failure to pay can result in serious consequences such as liens, levies, and wage garnishments.
Can the IRS Hold Me Liable for My Spouse’s Tax Debt?
The short answer is that whether you are responsible for your spouse’s back taxes depends largely on your tax filing status during the marriage and when the debt was incurred. If you file a joint return, both spouses are generally jointly liable for the entire tax debt, including any interest and penalties. However, if you file separately, you are usually only responsible for your own tax liabilities. The timing of the tax debt, whether it was accrued before or during the marriage, also significantly affects your liability.
Liability Under Married Filing Jointly
If you file jointly, both spouses are generally jointly and severally liable for the tax debt. In this case, the IRS can pursue either spouse for the entire amount owed. This means that both spouses are individually and collectively responsible for any taxes, interest, and penalties owed on a joint tax return. Even if you yourself did not do anything wrong, or you were unaware of any wrongdoing by your spouse, you are still 100 percent legally responsible for your shared tax debt.
Liability Under Married Filing Separately
If you choose to file separately, you are only responsible for your own tax liabilities. This can protect you from being liable for your spouse’s back taxes. However, this filing status often results in higher tax rates and reduced eligibility for certain credits and deductions.
When the Debt Was Incurred
When it comes to tax or other financial obligations, timing matters. Debt that your spouse incurred before the marriage generally remains their sole responsibility, meaning you won’t automatically be on the hook for it. Once you’re married, however, the rules change depending on how you file and where you live. In community property states, certain post-marriage debts may be considered shared, while in other states your liability depends on whether you file a joint return or separately. This distinction between pre- and post-marriage debt is key to understanding whether the IRS can pursue you for your spouse’s back taxes.
In community property states, spouses equally own all income and assets acquired during the marriage. While filing separately may seem to limit liability, it often only creates the “illusion” of separate responsibility, as both spouses can still be held liable for half of the community income tax debt. Spouses are each responsible for reporting half of the total community income on their tax returns, regardless of who earned it. Income from property owned before marriage, or acquired as a gift or inheritance during the marriage, is generally considered separate property and not subject to community property rules. There are nine community property states:
Arizona
California
Idaho
Louisiana
Nevada
New Mexico
Texas
Washington
Wisconsin
It’s important to note that prenuptial agreements may carve out certain assets or liabilities from community property treatment.
Opt-in States
Alaska, South Dakota, and Tennessee are special cases when it comes to community property. These three states are not default community property states. Instead, they allow couples to opt in through special legal agreements.
Alaska: In 1998, Alaska became the first “opt-in” community property state. Married couples (and even unmarried couples who sign an agreement) can establish a community property agreement or set up a community property trust. This allows them to treat some or all of their assets as community property. A big reason couples do this is for tax benefits, especially the “double step-up in basis” when one spouse dies.
Tennessee: Tennessee allows couples to create a Tennessee Community Property Trust. Both spouses must be trustees, and at least one trustee must be a Tennessee resident. By placing property into the trust, they can elect community property treatment for those assets, mainly to get the same tax advantages available in true community property states.
South Dakota: Similar to Tennessee, South Dakota law permits couples to use a South Dakota Community Property Trust. The structure is almost identical, with the same goal: allow non–community property couples to opt into community property rules for estate planning and tax reasons.
Tax Relief Options for Spouses
If your spouse incurs tax debt, you may qualify for some type of relief. Here are the most common options.
Innocent Spouse Tax Relief
Innocent Spouse Relief can relieve you from paying additional taxes, interest, and penalties. If you filed a joint return and your spouse understated income, claimed improper credits, or took unauthorized deductions without your knowledge, you may qualify for Innocent Spouse Relief by proving you had no reason to know of these errors when signing the return. This relief is most commonly available to taxpayers who are no longer married. To request this relief, you must file Form 8857 within two years of receiving an IRS notice informing you of the tax debt.
Injured Spouse Tax Relief
Injured spouse relief, applies if you are still married but your share of a joint refund was taken to cover your spouse’s past-due debts, such as child support, federal student loans, or back taxes. To claim this, file IRS Form 8379, Injured Spouse Allocation. Form 8379 must be filed within three years of the return or two years from payment, whichever is later. You can file Form 8379 with your original return or separately after filing.
Separation of Liability Tax Relief
Separation of Liability Relief applies when a joint tax return has been filed, and the spouses are divorced, legally separated, or no longer living together. Under this relief, the IRS divides the understated tax, along with related interest and penalties, between the spouses based on their respective shares of income, deductions, and credits. Taxpayers must file Form 8857, Request for Innocent Spouse Relief, within two years of receiving an IRS notice regarding the tax debt to request this relief.
Spouse Taxes Equitable Relief
If you do not qualify for innocent spouse relief or separation of liability relief, you may still be eligible for equitable relief. This form of relief can protect you from having to pay your spouse’s understated or underpaid taxes on your joint return if, based on all the facts and circumstances, it would be unfair to hold you responsible. To request this relief, taxpayers need to file Form 8857, Request for Innocent Spouse Relief, within two years of receiving an IRS notice about the tax debt.
Marriage and Taxes: FAQs
Will the IRS take my refund if my husband/wife owes?
Yes, the IRS may take your refund if your spouse owes back taxes or certain other debts, but it depends on a few factors. When a spouse has a federal debt, like unpaid taxes or student loans, the IRS can offset (or take) a portion of a joint tax refund to cover the debt through a process called the Treasury Offset Program. However, you may be able to keep your portion of the refund by filing Form 8379, Injured Spouse Allocation with your return. This form allows you to claim your share of the joint refund if you had income or tax credits that contributed to it.
What happens when you marry someone who owes back taxes?
When you marry someone who owes back taxes, you aren’t automatically responsible for their debt. However, if you file a joint tax return, the IRS may use your tax refund to pay off your spouse’s back taxes through the Treasury Offset Program. If you want to avoid this, you can file separately, though this may result in a higher tax rate or limited credits. If you still prefer to file jointly, you can protect your portion of any refund by filing Form 8379, Injured Spouse Allocation. This form helps allocate your portion of the refund so it’s not used to pay your spouse’s debt.
Is tax debt marital debt?
Tax debt is not automatically considered marital debt, but it can be depending on how and when it was incurred. Typically, tax debt is marital debt if it’s from taxes owed on income earned during the marriage and if you filed a joint tax return, as both spouses are usually liable for joint return debts. However, if the debt was incurred before the marriage or from separate income, it’s generally considered separate debt.
Tax Help for Innocent Spouses
There are scenarios that could disqualify you from Innocent Spouse Relief, such as having knowledge of the errors your spouse made or signing an offer in compromise with the IRS. It’s important to note that while many taxpayers apply for this relief, a smaller percentage are actually granted. These relief options can also take months for the IRS to review and process. Be sure to consult with a qualified tax professional to understand your options. Fortunately, the IRS recognizes the need to protect innocent parties and provides relief options for those who qualify. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
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