Getting Married to Someone with a Tax Debt? 4 Ways to Protect Yourself
A married couple is a single entity for tax purposes, which can get complicated when it comes to debt. One partner with good tax history can wind up responsible for debt incurred by his or her spouse, and could see an impact on tax refund. However, if the partners follow certain key steps while filing taxes, the Internal Revenue Service (IRS) can issue the refund that has been adjusted for debt to only one of the two spouses.
These steps can protect one spouse from the other’s tax debt, which can be important on both a financial and personal level.
- Change the number of exemptions
This is one of the easiest ways for a spouse to protect a couple when one is in debt to the IRS. Lowering the number lets the IRS withhold more taxes out of the paycheck while increasing it lowers the taxes withheld.
This may mean that the tax refund will be smaller or even non-existent, but it would satisfy the person’s tax obligations while eliminating the chance of owing money to the government due to the spouse’s debt.
- Use the innocent spouse option
If you can’t change the number of exemptions, the person without debt can try to use the innocent spouse option. This possibility only applies under certain circumstances.
Explore the innocent spouse option if:
- The tax debt belongs to a single spouse, and was incurred before the marriage took place.
- Paying the debt would create financial hardship for the couple.
- One spouse has filed for divorce because of spousal abuse
- English is not the first language for one of the spouses
- The court has issued a divorce decree that specified that one spouse pay for the other’s outstanding debt
This option can get complicated, and it is advisable to use a professional tax service to help navigate it.
- Use the injured spouse option
People can also protect their refunds by using the injured spouse option, assuming they meet the outlined criteria. This method lets the debt go to one spouse rather than both members of the couple. Some of the criteria for this option overlap with the innocent spouse option.
Explore the injured spouse option if:
- It can be shown that the debt was incurred prior to the couple’s marriage, the adjusted refund can be transferred to a single spouse.
- It can be shown that the debt was created due to outstanding child support, student loan, or spousal support obligations.
- The couple is entitled to EIC credit.
- Paying the debt jointly would be unfair and create undue financial burden on the couple.
- If the couple is filing a paper return, it is crucial that they write “Injured Spouse” at the top of the claim, and file 8379. A tax professional can provide more details about this option.
- File a separate return
Many spouses try to avoid a partner’s debt by filing separately. They choose the “married filing separate” rather than the “married filing jointly” option when they file their returns. However, this can still reduce the refund that either party is eligible for because it means that other benefits of filing as a couple are unavailable.