April 15 has come and gone. Most people have filed their federal taxes or filed for an automatic tax extension. But others are facing a large tax bill with no idea how to find the money to pay it.
There’s good news. You can get an automatic extension for unpaid tax debt for up to six months. If you file for a tax extension, you won’t pay penalties for failure to pay your taxes, but interest on your tax debt will continue to accrue.
You may even have unpaid taxes from prior years continuing to collect interest and penalties. But what if the tax debt was caused by a spouse or an ex-spouse?
It happens frequently, where one spouse is not aware that the other has tax debt or even spent money that was set aside for taxes.
If your spouse did not pay taxes, you may have other ways to avoid the liability for that tax debt. First, let’s look at what happens if your spouse owes taxes and you filed a joint return.
What Happens If Your Spouse Owes Taxes?
If your spouse owes taxes and you filed jointly, the IRS can come after you for the tax debt. The agency can issue tax levies or tax liens on your property and even garnish your wages.
In the case of tax evasion, you and your partner could both face hefty fines and jail time if it is proven that you knowingly understated your taxes or failed to file in a timely manner.
But there is a solution, especially if you weren’t aware of what your spouse did, even though you signed the tax return.
Should You File Jointly?
Married couples can often save money filing a joint tax return. IRS laws offer tax benefits for those who file jointly by doubling the standard deduction, doubling tax bracket thresholds, and doubling phase-outs for certain credits and deductions.
If one partner earns more than the other, showing combined incomes on your tax returns can help reduce the tax liability for the spouse who earns more by putting them in a lower tax bracket.
There are also some tax credits you can’t claim if you file separately:
- Earned income tax credit
- Child and dependent care credit
- American Opportunity and Lifetime Learning Education tax credits
It pays to speak to a tax professional to decide if you should file jointly or separately. But there are some circumstances where you should hesitate to file jointly even if it would reduce your overall tax liability as a couple.
When Married Couples File a Joint Tax Return
There are other aspects of tax law that you should understand when you agree to file jointly.
If you would have collected a tax refund by filing separately and your partner would have paid taxes, you might owe taxes as a couple if you file jointly. Rather than your partner exclusively responsible for that tax bill, now you are both liable for it.
Likewise, if your partner owed tax debt from prior years and you file jointly, any tax refund could be applied to those back taxes.
On the other hand, if you file separately, your spouse would still owe taxes but you would be free to collect your tax refund. Depending on how you manage your finances, you can put that refund toward your spouse’s tax bill, but you aren’t legally obligated to do so if you file separately. That money is yours.
Joint and Several Liability: Definition
“Joint and several liability” is a legal term that means all parties are responsible and if one party is unable to pay, the other is held equally responsible.
When you file taxes jointly, you accept joint and several liability for that tax debt. Likewise, if your partner knowingly commits tax fraud or tax evasion by understating income or overstating deductions, you could also be held liable.
With this in mind, consider your tax situation carefully before agreeing to file jointly, especially if you would lose your tax refund if your partner owes taxes.
How to Qualify for Innocent Spouse Relief
If you discover your spouse or former spouse understated taxes owed when you filed jointly, you may qualify for one of several forms of innocent spouse relief.
Standard Innocent Spouse Relief
You may qualify for standard innocent spouse relief if your spouse made an error on the tax returns, which later resulted in a larger tax bill. If you can show you didn’t know about the error, you may qualify for Innocent Spouse Relief. You wouldn’t be responsible for any portion of the taxes. Any future tax refunds you receive would be protected as long as you file separately in the future.
Separation of Liability Relief
If you’re divorced, legally separated, or haven’t been living together for 12 months prior to filing for relief, you may qualify for separation of liability tax relief.
According to the IRS website, you must also meet the following criteria:
- Taxes were understated due to errors on the return
- You didn’t know about the errors when you signed the return
If you knew about the understated taxes when you signed the return or, as a couple, you transferred assets to avoid taxes or to knowingly commit tax fraud, you won’t qualify for innocent spouse relief.
Equitable Relief
If you are still married and the IRS deems it unfair to hold you responsible for your spouse’s tax debt, you may qualify for equitable relief.
Similar to separation of liability, equitable relief ensures you are only responsible for the tax that you owe based on your income and assets.
If you don’t qualify for standard innocent spouse relief, equitable relief can help by protecting your assets from wage garnishment, levies, or liens, as long as you pay your portion of the tax debt in a timely manner.
How to File for Innocent Spouse Relief
You can file using IRS Form 8857 Request for Innocent Spouse Relief. It can take up to six months for the IRS to review your case. During that time, unpaid debts will continue to accrue tax interest and penalties.
When you file for innocent spouse relief, the IRS determines which form of relief pertains to your case and acts accordingly. If the IRS agrees to your claim, it will determine what percentage of tax debt you owe based on your income and assets.
Bottom Line
Deciding whether to file jointly or separately depends on your income, deductions, and your situation as a couple. Can you trust your spouse? Are in the midst of divorce proceedings or legal separation? Does your spouse have outstanding tax debt?
These are all things to consider about your tax situation as you make plans that could affect your financial future.
FAQ
Find out what people are asking about a husband with tax debt.
Should I file separately if my husband owes taxes?
If your husband owes taxes but you would qualify for a tax refund, you should consider filing separately. The IRS won’t take your refund and apply it to your husband’s tax debt unless you file jointly.
If my husband owes taxes can I file separately?
You can file as married, filing separately, to protect your tax refund if your husband owes taxes.
If my husband owes taxes do they come after me?
If you filed as a married couple and your husband owes taxes, the IRS can take your joint tax refund to cover the tax debt. If you filed jointly, the IRS can also garnish your wages or put a tax lien or tax levy on your property and assets.
You may be able to qualify for innocent spouse relief to reduce your liability.
