You’re in love! You’re getting married! Odds are taxes are the last thing on your mind. But, guess what? When you start filing joint tax returns, your spouse’s tax problems become YOUR tax problems. Having a few honest, frank discussions about your tax philosophy might just prevent some nasty arguments and tax problems down the road. What’s your strategy? Do you always get a big refund? Does your spouse always owe a good chunk come tax day? Get informed on tax laws and review your previous tax returns. Consult a tax professional if you feel out of your depth.
One of the smartest things is to make both partners responsible for the taxes. First, it is fairer than sticking one person with the entire chore. Second, being personally involved in your taxes makes both of you better stewards of your household’s financial situation. No matter how income is brought into your home, you are both ultimately responsible for paying taxes. Staying active in your tax situation helps keep you financially healthy.
In addition, never sign a return unless you know everything is true and properly stated. We all like to assume our partners are honest, but I can’t tell you how many people have no problem fibbing on their taxes. And little fibs can become huge tax problems. The IRS will hold you and your spouse both accountable for all taxes filed jointly even after a divorce. By signing the return you become complicit in any erroneous information. Best to challenge anything that doesn’t look right before filing.
But what can you do when it’s too late for prevention? What recourse do you have if you find the IRS is applying your tax refund to your spouse’s (or former spouse’s) liabilities?
Depending on your specific circumstances, you might be eligible for Injured Spouse Relief, or Innocent Spouse Relief.
Injured Spouse Relief comes into play if the IRS applies your tax refund to your spouse’s separate tax liability. Usually from a debt your spouse incurred before you were married. To be eligible for Injured Spouse relief you must meet the following two conditions:
1. Properly made and reported your tax payments, or claimed a refundable tax credit (like the earned income credit).
2. Not be legally obligated to pay the past-due amount.
To apply, you will need to file IRS Form 8379 Injured Spouse Allocation. If the IRS accepts your filing, you may be entitled to receive your share of the tax refund, and only use your spouse’s share to cover the old debt.
If the IRS is applying your refund to cover a debt your spouse incurred while you were married, you may qualify for Innocent Spouse Relief. This program removes your responsibility to pay taxes, interest and penalties resulting from your spouse’s actions. To be eligible, you must meet all the following criteria:
1. You filed a joint tax return.
2. There is an understated tax on the joint return, caused by erroneous information (like underreported income, or incorrect deductions) from your spouse.
3. You can show that you did not know, or have any reason to know, that the tax was understated when you signed the return.
4. Based on the facts and circumstances of your case, it would be unfair to hold you liable for the understated tax.
Simply fill out IRS Form 8857 Request for Innocent Spouse Relief (available from IRS.gov), which covers up to three tax years.
In either of these circumstances, remember to follow the directions closely, and be sure to take action as soon as you become aware the IRS is holding you responsible for your spouse’s tax liability. As with most things in life, procrastination makes tax problems worse. And there are strict filing deadlines for both Innocent Spouse Relief and Injured Spouse Relief.
While these actions will not cancel the debt, it can keep the IRS from offsetting your refund, or engaging in collection activities against you. Instead, the IRS will hold your spouse fully responsible, and you get to keep your refund.
Remember the old adage: an ounce of prevention is worth a pound of cure. Begin your married life on the right foot. Have those tax conversations before you walk down the aisle, or you run the risk of some unpleasant marital and IRS problems down the road.
Roni Deutch, better known as The Tax Lady, is the founder and owner of the nation's largest tax resolution law firm, Roni Lynn Deutch, A Professional Tax Corporation. In 2009, Roni wrote her first book, The Tax Lady's Guide to Beating the IRS--And Saving Big Bucks on Your Taxes. She is also a contributor to On The Money.