Tax Relief for Spouses: Innocent Spouse and Injured Spouse
What happens when life complicates your ability to organize, file, and pay your taxes? There are hundreds of scenarios that can interrupt life, after all, making it logistically or financially impractical to meet Internal Revenue Service (IRS) deadlines. While the IRS can’t identify every scenario that taxpayers might encounter, they have policies for everything from birth, moving, divorce, and bankruptcy to new careers, first-time home ownership, and retirement. There are even tax accommodations for spouses, including injured spouses and innocent spouse tax relief.
Here, we’ll dive into the scenarios for spousal tax relief. What makes you eligible for innocent spouse or injured spouse relief? Is there a deadline for applying for these programs? Let’s get into the details.
Tax Relief for Spouses
Until you need tax relief solutions, you might not know about options for specific categories of life events or circumstances. Once you go looking, you’ll find the IRS has several exceptions and accommodations that can be made for spouses, including separation of liability, equitable relief, relief related to community property and more.
The reason there are so many nuances surrounding tax relief for spouses is a function of life and relationships. If you and your spouse once filed your taxes together and now plan to divorce, there will be implications for your taxes. Similarly, there are IRS policies in place to protect one spouse if the other is behind on taxes or owes money to the IRS.
This is where tax relief for innocent spouse and injured spouse come in. These federal policies are designed to protect you, should your spouse’s taxes unfairly impact yours. Let’s take a closer look at each.
Injured Spouse Tax Relief
An injured spouse claim has nothing to do with your physical well-being. Instead, it is related to the way the IRS connects your taxes with those of your spouse. If you filed a joint federal tax return with your spouse, for example, and your refund was withheld because your spouse owed money, you might have the right to file an injured spouse claim.
How it Works – If the IRS determines your spouse owes money for taxes owed, federal student loan debt or child support, owed to a state, it may intercept your tax refund to offset your spouse’s debt.
What Qualifies as Your Spouse’s Debt (and not yours) – How do you know if you are technically responsible for your spouse’s debt? In the eyes of the IRS, you are not responsible for:
- Income tax owed in a year that you filed your taxes separately.
- Unpaid state or federal income tax, from the time before you married.
- Money your spouse owed in student loans before you married.
- Past-due child support payments for children from another relationship.
- Foreclosures on federal loans, before you were married.
Keep in mind, if your debt is jointly owed, from a year when you filed your taxes jointly, you will not qualify for injured spouse relief.
What’s Required for an Injured Spouse Claim – On top of making sure you do not owe money to the IRS yourself, and that the amount intercepted from your refund qualifies as your spouse’s debt and not yours, you must meet the following conditions to qualify for an injured spouse claim:
- You must have reported earned income from a job, self-employment, or investments. (government support income does not count) on a joint return.
- You must have made and reported federal tax payments on a joint return.
An injured spouse claim is made by either filing IRS Form 8379 yourself or having a tax professional file it on your behalf. Be sure to keep any copies of relevant forms and notices, including W-2 and 1099 forms received by you or your spouse.
Innocent Spouse Tax Relief
An innocent spouse claim can help you avoid paying additional taxes if your current or former spouse understated their income on a joint return and you weren’t aware of the errors. Just as it sounds, this policy is designed to protect those who have been penalized for errors that weren’t their own.
How it Works – If you have filed a joint return with your spouse, or former spouse, and the IRS determines that they have understated their income, your tax refund could be intercepted to offset the money owed.
What Qualifies as Understated Income – If your spouse, or former spouse, has understated their income from employment or self-employment on their tax return, innocent spouse relief may be available to you. It does not apply to taxes due on your own income, household employment taxes or business taxes.
What Makes You Eligible to Apply – You can apply for innocent spouse tax relief if you meet the following conditions:
- You filed a joint tax return with your spouse or former spouse.
- Your taxes on the joint return were understated due to errors in your spouse’s reporting.
- You were unaware of the errors.
Keep in mind, that you are not eligible for innocent spouse tax relief if you have signed an offer in compromise or a closing agreement with the IRS within the same year. Nor are you eligible for relief if a court has denied your claim.
There are additional types of innocent spouse tax relief, including equitable relief and separation of liability relief. Through the latter, you may only have to pay your share of understated taxes if you are divorced, separated, or no longer living with your spouse.
Next Steps for Tax Relief
How will you know that your tax refund has been intercepted, to compensate for the money owed by your spouse? Luckily, you won’t have to guess. You will receive a notice from the IRS, indicating that your refund has been reduced or intercepted.
In the case of an injured spouse claim, you’ll receive a Notice of Offset from the IRS or the U.S. Treasury, indicating the original amount of your return and how much has been intercepted to apply against your spouse’s debt. If you wish to request tax relief, you’ll need to file IRS Form 8379 within three years of the return date or two years of the date the tax was paid, whichever is later.
In the case of an innocent spouse claim, you’ll receive an IRS notice, indicating that you owe taxes on a joint return. It may claim that you owe additional taxes, due to an audit. It’s important to make an innocent spouse claim within two years of receiving an IRS notice, or it may not be valid.
As you can imagine whether you are considering making an injured spouse or innocent spouse claim, it helps to have an experienced tax team in your corner. The right team of tax experts will take the time to understand the scenario between you and your spouse or ex-spouse, they will make appropriate claims on your behalf, and should you need to enter negotiations with the IRS, they will do so for you.
At Franskoviak Tax Solutions, we have helped thousands of clients with taxes and tax problems for more than 30 years. We provide comprehensive tax services with first-class expertise and a personalized, boutique-style approach. Speak to our team about personal and business taxes, IRS tax deadlines, payroll taxes, IRS tax relief, and tax problems such as IRS tax notifications, payroll tax debt, delinquent taxes, and more.
Start with a free consultation—we’re here to help you understand and navigate spousal tax relief issues and, where required, negotiate with the IRS on your behalf.