Marriage & Tax Debt: What Are Your Options?

A married couple shares everything in life – and that includes debt. The law sees the two people in a marriage as one entity, sharing the joys and burdens of income, assets, and property. When one spouse has tax debt, it follows that the other spouse takes on this debt equally; but it’s more complex than that. The IRS may be able to distinguish each spouse’s return, safeguarding the one without tax debt. Moving forward with one (or more) of the four solutions below can separate the tax debt within a marriage.

Marriage & Tax Debt: Exemptions

The simplest solution for offsetting the accrued tax debt is by changing the number of exemptions under the income of the spouse without tax debt. A lower number will withhold more taxes, while a higher number will reduce the withholding. Increasing the withholding will guarantee that the spouse’s taxes are satisfied when filing season rolls around, and eliminate the possibility that the spouse will owe many due to their spouse’s outstanding debt.

The Injured Spouse Option

When changing exemptions is not possible, the injured spouse option can come in handy, if the requirements are met. The injured spouse option provides a tax refund to one spouse individually rather than the couple. The following criteria is required:

  • The debt accumulated prior to the marriage
  • The debt is due to child support, student loan debt, or spousal support
  • The couple qualifies for the EIC credit
  • Paying the debt would cause financial hardship

To take advantage of this option, the couple must file Form 8379.

The Innocent Spouse Option

The innocent spouse option is similar to the injured spouse option, with a few different situational requirements:

  • A court issued a decree that required one spouse to take on tax debt from a previous marriage
  • One spouse does not speak English as a first language
  • One spouse has filed for divorce because of spousal abuse
  • Paying the debt would create financial hardship
  • The tax debt belonged to a single spouse before the marriage

This option is not as cut and dry as the injured spouse option, in that there is no form to fill out. A tax professional must provide assistance to file.

Filing Separate Returns

The final route seems like the most straightforward, but the cons may outweigh the pros; filing a separate return, or as married filing separately, could result in a lower tax return for both spouses. This is because filing separately relinquishes eligibility to take certain deductions, like the EIC.

Marriage & Tax Debt: What to Do Next

Allowing the IRS to process the return(s) of spouses within a marriage separately can be advantageous for both parties, and allow at least one spouse to receive a fair tax refund. The strategies above can help relieve the burden of the already stressful situation of having tax debt within a marriage; whichever route you think you might take, consult your tax professional for guidance on which will be the most financially sound.

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