If your fiance owes back taxes in the Seattle area, you may find yourself responsible for paying the tax debt incurred before your marriage if you meet certain criteria. While single-file taxpayers don’t need to worry about an issue like this, spouses who file jointly are generally both responsible for any tax liability. Fortunately, you may qualify for an innocent spouse or other tax debt relief plans, so you won’t always be responsible for your fiance’s tax debt. Learn more about how your tax filing status can affect your tax liability before, during, and after your marriage.
How Do I Negotiate IRS Debt?
To negotiate IRS debt, you will usually have a few options to explore based on your specific circumstances and your financial situation. The IRS is willing to work with taxpayers to help people pay off tax debt without experiencing financial hardship. However, since some of the plans and deals offered by the IRS can be difficult to qualify for, it’s best to hire a tax attorney in Seattle or another tax professional who can walk you through the application process.
When you negotiate with the Internal Revenue Service, it’s important to be honest about your finances, such as your income level and banking information, since this will help you qualify for plans such as innocent spouse relief, offers in compromise, or currently not collectible status.
Does the IRS Allow for Payment Plans?
The IRS has several payment plan options for taxpayers who want to pay off tax debt. Whether you or your spouse owes back taxes, an installment agreement can reduce your tax bill. Many of these plans are long-term solutions that allow you to make payments for unpaid taxes each month until your debt is paid off. Some plans even allow you to set the minimum monthly payment so you can more easily manage your budget.
What If I Believe I Am Not Responsible for the Debt My Spouse Incurred?
If your spouse owes back taxes and you believe you shouldn’t be held responsible for those tax obligations, you may qualify for special status as an innocent spouse that will relieve you from the debt your spouse incurred. You may be considered an innocent spouse if your spouse filed jointly without informing you or made mistakes on your joint return.
What Is Innocent Spouse Relief?
Innocent spouse relief is essentially a status that tells the IRS you are not responsible for the back taxes your spouse owes on your joint tax return. Because the IRS will not hold you liable for paying tax obligations your spouse owes, you will not be subject to interests on the back taxes, penalties such as federal liens or property levies, or other consequences. You will also not need to apply for an installment agreement if your spouse owes taxes on your joint return.
Injured Spouse Relief
If you filed jointly, but your tax refund was seized because your spouse owes back taxes, you can apply for injured spouse relief. This is a special form that allows one spouse to reclaim part of the tax refund that was used to pay off another spouse’s tax debt. You can only qualify for injured spouse status if your tax return was filed as “married, filing jointly.” If your tax status was “married, filing separately,” you will not qualify for injured spouse status.
Your injured spouse allocation will depend on the amount of your individual federal return based on your income, whether you were knowledgeable about your spouse’s tax filing mistakes, and whether you and your spouse are still married. The IRS may still keep your tax refund if you don’t meet all qualifications for this status.
Why Might the IRS Seize Your Refund?
If you are filing jointly and your spouse has any debts, the IRS can intercept your refund to pay for those debts. These debts can include unpaid taxes, spousal support payments, student loan debts, state tax debts, and other creditors to whom your spouse owes money.
The IRS may take your federal tax refund if your spouse owes the IRs money from previous tax years before your marriage. If you and your spouse know that your spouse already has significant tax debts, you may want to file separately instead of jointly. When your spouse no longer owes the IRS money, then you may want to consider filing jointly.
Separation of Liability Relief
If you and your spouse are separated, you may qualify for Separation of liability relief, which is a special rule that allows you to assume partial liability for any tax debt incurred by a jointly filed tax return. If you qualify for separation of liability relief, you will not be held totally responsible if your wife or husband owes taxes.
To qualify for the separation of liability relief status, you will need to prove that you and your spouse have been separated for at least 12 months, that you are legally separated, or that you are divorced. Your divorce decree, financial documents, and other information can all be used to prove your separation status to the IRS.
Can You Still Be Held Liable for Tax Debt After Divorce?
Even if you have a divorce decree that proves you and your spouse are no longer married, you may still be on the hook for your spouse’s taxes if you ever filed taxes jointly. The only way you will not be responsible for the debt your spouse owes in back taxes is if you file separately throughout your marriage, as this means you were never associated with your former spouse’s tax obligations in the first place.
Equitable relief may also be an option for you that will discharge your tax debt liability if the IRS believes it would be unfair to hold you responsible for your spouse’s tax, especially if your spouse owed tax debt before your marriage. This particular relief is ideal if your wife or husband owes taxes because they underreported income or took deductions your joint return did not qualify for. Equitable relief may be granted if you do not qualify for other innocent spouse relief plans.
How Can Equitable Relief Help?
If you are an innocent spouse, having an equitable status can offer great relief from some of the penalties the IRS may have placed on your assets. To pay back taxes, the IRS may place federal liens on properties, bank accounts, vehicles, and other assets. When you are granted an equitable status, these liens are removed from your personal assets, and you will also not be charged further interest or penalties on the taxes owed by your spouse.
How Do You Qualify for Innocent Spouse Relief?
To qualify for innocent spouse relief, you will need to meet several conditions, such as being named on a joint tax return. You will also need to prove that you were ignorant of your spouse’s erroneous item or underreported income on the tax return and that you were not suspicious of the return. Additionally, the return itself must show that deductions, income, and credits are listed much differently than in previous years.
Does It Matter When You Married Your Current or Former Spouse?
When your marriage began can actually have a huge impact on whether you will be responsible if your spouse owes taxes. The IRS considers both the start of the marriage and the tax filing status when assigning responsibility for back taxes.
If the debt accrued before the marriage, your spouse’s tax liability will usually be theirs alone, unless you file jointly before you are officially married. If both spouses file jointly during the marriage, both spouses are usually held responsible for one spouse’s unpaid taxes. If the tax debt accrued after the marriage ended, responsibility for your former spouse’s tax debt may or may not be your responsibility based on your filing status for that year’s tax return.
What If You Are a Surviving Spouse?
If you have a deceased spouse, there are certain rules about tax debt liability to be aware of. If you filed jointly before your spouse died, you will be held responsible for paying any debts you and your spouse owe. If you and your spouse filed separately, then you will not be held liable for any tax debt.
However, if your spouse had an estate, you will need to work with a tax expert to settle your spouse’s debt or assets on the estate, particularly if you are set to inherit the estate through a will. Sometimes, the IRS will use the value of the deceased spouse’s estate to pay the tax debt, which will reduce the inheritance of the surviving spouse.
How Often Is Innocent Spouse Status Granted?
The IRS receives an estimated 50,000 requests for innocent spouse relief each year from people who do not want to be held responsible for their spouse’s taxes. However, because this form of tax bill relief is determined on a case-by-case basis and because the requirements for this relief plan are hard to meet, it may be a challenge to be granted this status. In fact, the IRS grants less than half of all applications.
Of course, if you believe the IRS made an error by denying your innocent spouse status request, you have the right to a fair hearing. During the hearing, you will prove why you should be relieved of your current or former spouse’s tax bill. You may need to hire a lawyer to prove your case.
How Can You Avoid Your Spouse’s Tax Debt In the Future?
If you are still married, then you may want to find a way to reduce your tax liability on your future joint return. One way you can do this is to hire a tax professional to give you advice about the tax deductions, credits, and breaks you may qualify for, which can significantly reduce back taxes owed to the IRS.
It’s also important to understand how your married filing status can affect your future responsibility for your spouse’s back taxes. For your next tax return, you can choose from one of two tax filing statuses. These statuses should also be applied to any business taxes you need to file as a business owner.
Joint Tax Returns
If your tax returns fall under the “married, filing jointly” status, then you and your spouse will likely qualify for some benefits, such as the American Opportunity Tax Credit, the Earned Income Credit, and deductions that people with higher income thresholds qualify for.
However, if you file jointly, you may also be responsible for any taxes owed. Filing a joint tax return but being unable to pay off taxes can result in a federal tax lien, wage garnishment, and other penalties. If you are filing jointly and you want to avoid unfair tax liability, be sure to work with your spouse on your joint return in the future and enforce the recommended payment plan.
Separate Tax Returns
Some married people believe that the only tax filing status they can use is the “married, filing jointly” status. However, married spouses can file individual tax returns under the “married, filing separately” status. When you file separately, each spouse will assume individual liability and will pay back taxes separately. Any tax refunds will also be issued separately if your status is “married, filing separately.”
The drawback of not filing jointly, of course, is the fact that you will not qualify for some of the other tax breaks and certain tax benefits you would have otherwise qualified for if you filed jointly. Still, married people who do not want to be responsible for their spouse’s tax debts find the trade-off of not filing a joint return to be worth the reduced tax liability.
Unless you and your spouse are filing separately, you will generally be held liable for any tax debt your spouse incurs during your marriage. If you don’t believe you should be responsible for your spouse’s back taxes, especially if this debt accrued before your marriage, you may qualify for innocent spouse relief. Get in touch with Seattle Legal Services, PLLC at 206-895-7268 to learn more about your federal government tax relief options.