January 13, 2021
When it comes to taxes, few things are worse than finding out that you’re on the hook for your spouse’s tax debt. Whether you weren’t aware that they owed back taxes and just found out upon receiving a notice from the IRS or received prior warning that money was owed (but had no idea how much), one thing is clear – you may owe the IRS for your spouse’s unpaid debt. In this situation, you undoubtedly have plenty of questions. However, there is also the chance that you do not owe the IRS that money, as it may be your spouse’s debt alone. It all depends on a number of different factors, including your filing status and your marital status. So, let’s clear up some of those common spousal tax misconceptions.
Married, Filing Jointly
When two people who are legally married choose to file their taxes together, there are some beneficial and unfortunate things that can happen. On the positive side, the couple is eligible for a number of different tax breaks, such as:
- American Opportunity Tax Credit
- The Earned Income Tax Credit
- Higher Income Thresholds for certain deductions
While these tax breaks can lower the amount of money that you owe the IRS or help you receive a larger tax return, there is a downside – both spouses become liable for any amounts owed. This means that if one spouse owes the IRS, they both become responsible for having to pay that debt. If it isn’t paid, then any of the items owned by either spouse, such as property, vehicles, and bank accounts, can have a lien placed on them by the IRS if a payment plan isn’t set in place or the debt isn’t paid on time or according to the agreed-upon payment plan.
In these cases, yes, one spouse is indeed liable for the other’s unpaid taxes. However, you are only responsible for the debt for the particular year that the two of your filed jointly.
What If You and Your Spouse File Separately?
On the other hand, if both you and your spouse are married but file your taxes separately, in a manner officially known as “married, filing separately” then everything changes. There are no joint tax debts from that year. Each spouse is liable for their own separate tax debts, if any. However, you will not receive any of the tax breaks that you are eligible for when filing jointly, so you may not receive as large of a tax return, or you may end up paying more in taxes, since you are taxed individually.
With that said, if you previously filed your taxes jointly with your spouse and owe back taxes from that particularly year, then you are both liable for them. It all depends on the year and the filing status. You may be able to file jointly one year and separately the next depending on your overall circumstances and the advice provided to you by your professional tax preparer. It all comes to down to your specific situation. Overall, however, in the years that you and your spouse file separately, you are not liable for any amounts that they owe to the IRS.
When Did You Get Married?
In addition to the two situations explained above, the timing of your marriage can play a role in whether or not you are responsible for your spouse’s tax debts. Here’s a quick breakdown:
- Amounts Accrued Prior to Marriage – If your spouse accrued their tax debt prior to your marriage, then you are not liable for any amounts owed to the IRS. That debt is theirs alone. With that said, in some cases, if you file a joint return during your marriage and your spouse still owes the IRS money from a debt accrued before your marriage, the IRS may intercept your tax return from that joint filing and apply it to the debt. If this happens, you can file for Injured Spouse Status, which may result in that tax return being issued to you, instead of going towards their debt.
- Amounts Accrued During Marriage – Any debts accrued to the IRS during a marriage in years that both spouses filed joint tax returns are equally owed to the IRS. That is to say, both spouses are liable for those debts.
- Amount Accrued After Marriage – Depending on the time of your divorce, you may be liable for any back taxes that your soon-to-be-ex or ex-spouse owes the IRS. For example, if you were merely separated and filed a joint tax return, then you are liable for that debt. However, you may be eligible to file for Separation of Liability Relief, which removes some of the debt that you’re liable for. It all depends on the specific circumstances. Thankfully, once you are legally divorced, you are no longer obligated to file jointly, and any future IRS debts that your now ex-spouse owes are their liability alone.
Divorced Spouses and Tax Obligations
Sometimes, two spouses that are in the middle of a divorce that has not fully gone through yet can end up having to deal with taxes owed to the IRS. One spouse may not even be completely aware of what the other is up to financially. Any mistakes made by the filing spouse, such as incorrect deductions, understatements of earnings, and more, can become a problem when the other spouse is held liable for them. Since both parties aren’t legally divorced, they are both responsible for the tax debt. This complicates the divorce process because those debts may become a part of the settlement. However, if it can be proven that the filing spouse did this on purpose, then the other may qualify for innocent spouse relief.
Innocent Spouse Relief
If you are included on a joint tax return filled out and filed by your spouse that contains issues, such as underreported income or incorrect deductions, then you may be eligible for innocent spouse relief. This status shows the IRS that you are not responsible for your spouse’s mistakes, and you are therefore not liable for any of the debts that are owed to the IRS as a result of those mistakes.
In order to qualify for innocent spouse relief, a number of conditions must be met, including:
- You are listed on that joint tax return.
- At the time that you signed the return, you weren’t aware of the mistakes made on it by your spouse.
- You were unaware at the time that they underreported their income or listed any deductions incorrectly.
- You had no reason to be suspicious of the document (the tax return) that you signed, nor did you ask about any the questionable things listed on the return.
- The tax return in question had items that were listed quite differently than in previous years and is not indicative of a pattern.
If you meet all of these conditions and the IRS agrees, then you will qualify for innocent spouse relief and will be not be held liable for the amounts due to the organization based on your spouse’s mistakes. Even if you do not qualify for an entire release of liability, you may receive a partial release of liability. Either way, your spouse becomes the main individual liable for that debt.
The Tax Obligations of Widows and Widowers
When it comes to the tax debts left to widows and widowers, a number of different circumstances can arise. If the debts were accrued during the marriage and both the deceased spouse and the surviving one were listed on the tax return (filed jointly), then the widow or widower will still be held liable for that tax debt.
However, if both spouses filed separately, and the debt was only owed by the deceased spouse, then the surviving spouse isn’t liable for the debt. With that said, the deceased spouse’s estate is liable for the debt, which will need to be paid to the IRS before the estate is settled. If everything is willed or left to the surviving spouse, then this directly effects them and their inheritance, as the amount will be deducted from the estate that they will receive. In this roundabout way, the surviving spouse may still end up liable.
Seeking the Help of a Professional
Taxes are complicated, and they are made even more so when tax debts and legal marriage status come into play. It isn’t unusual for one spouse to have their tax return held after filing a joint return, just because the other owes the IRS for a debt that accrued before marriage. When you bring other legal statuses, like separations, divorces, and the death of a spouse into the situation, things can quickly become incredibly complex. It’s best to hire a professional tax preparation service in order to ensure that everything is correctly filed and submitted. You don’t want to owe a debt to the IRS based on a mistake that occurred when either you or your spouse (or ex-spouse) made a mistake.
On top of that, a professional tax advisor can help you file for Innocent Spouse Relief, Separation of Liability Relief, or Injured Spouse Status, if necessary and applicable, or help you work with the IRS to reach a mutually beneficial agreement based on a payment plan.
If you are wondering whether or not you’re liable for your spouse’s tax debts, reach out to the tax advisors at Enterprise Consultants Group. We have many years of experience in the field and can answer your questions, discuss your rights, and provide actionable options. Please contact us online or at (800) 575-9284 today to schedule a free and confidential consultation to see how we can help you.
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