By A.J. Gross, C.P.A., E.A.
Your spouse owes outstanding federal or state debt. You are not responsible for your spouse’s debts. If you file joint taxes with your spouse, the tax refund will be garnished and used to pay the outstanding debt. The outstanding debt can be back IRS taxes, back state or city taxes, back child support, unpaid student loans, or any other unpaid federal obligations. You have two options to stop your refund from being garnished.
The first option is to file separately from your spouse. You will get your tax refund when you file separate. Your spouse’s refund will be garnished. There is one issue with this option. There are less tax breaks when filing separate taxes. You could get a larger refund by filing jointly with your spouse.
The second option is to file jointly with your spouse and filing an Injured Spouse claim. By filing an injured spouse claim, you will get your portion of the refund and your spouse’s portion of the refund will be garnished. You get the best of both worlds with this option. There are more tax breaks for filing jointly with your spouse compared to filing separate.
Form 8379, Injured Spouse Allocation, is used to request Injured Spouse relief with the IRS. Form 743, Income Allocation for Non-Obligated Spouse, is used to request Injured Spouse relief with the State of Michigan. We strongly recommend filing the Injured Spouse claim with your tax return. You can file an Injured Spouse claim after you file your tax return. However, the acceptance rate is reduced when filing Injured Spouse claims after the tax return is filed.
The IRS recommends allowing 14 weeks for Form 8379, Injured Spouse Allocation, to process. The IRS will notify you by letter of acceptance or denial. If you are denied Injured Spouse relief, the IRS will give you 30 days to appeal the decision.
An Injured Spouse request is different than an Innocent Spouse request. Innocent Spouse is used when both you and your spouse have outstanding debt. You can remove taxes owed with your spouse by filing for Innocent Spouse relief.
IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.
A.J. Gross, C.P.A., E.A. is President of ALG Tax Solutions. A.J. Gross can be contacted at AJGross@algtaxsolutions.com.
This was printed in the June 15 - June 28 edition.