San Mateo, CA: It often happens to those that are newly married but can happen to any couple; debts owed by one spouse comes back to "haunt" the non-liable spouse who may not even know about these "skeletons". It can really damage a relationship---but there is a solution.
Understanding IRS Injured Spouse Relief and Refund Offsets
When you file a joint tax return with your spouse, the IRS considers both of you as a single financial entity. This means any tax refund resulting from your return is seen as jointly owned. This concept is know as jointly and several liability.
Issues can arise, however, when one spouse has previous outstanding debts—such as prior unpaid federal or state taxes, child support, or other federal or state non-tax debts. Under the Internal Revenue Code, the IRS has the authority to apply your tax refund to these debts before issuing any remaining amount as a tax refund. This process is known as a refund offset. The refund offset can come from the IRS or the Bureau of Fiscal Service. This can happen without your prior knowledge or consent, leading to unexpected financial strain and surprise.
A refund offset can be particularly frustrating for the spouse who does not owe the debt (known as the "non-liable spouse" or "injured spouse"). The refund offset may ending up taking the entire tax refund to satisfy the prior debt, leaving the the injured spouse to feel they got victimized. In situations where only one spouse is liable for the debt, the injured spouse may seek relief to recover their portion of the overpayment. The IRS must be notified and informed of the situation.
There are burdens and benefits to filing a joint tax return. Understanding the implications of filing jointly when one spouse has "non-joint" debts is crucial. While joint filing often provides tax benefits, it also opens the door to refund offsets. Knowing your options as a non-liable spouse, including the possibility of Injured Spouse Relief, can help you protect your personal financial interests.
It’s important to be aware of the potential for a refund offset if your spouse has any outstanding obligations. There are strict deadlines for filing for such relief, so if you find yourself in this situation, consider your filing options carefully and seek professional advice to determine the best approach for your specific circumstances.
Law Office of Kevin Rego
650.933.5222
Disclaimer: The information provided is intended to provide a general overview of the topic presented. It is not intended to be a legal interpretation of your individual tax or legal situation. If there is a conflict between the information provided and any legal authority implementing or interpreting the topic, the legal authority shall prevail. Always seek legal advice from a licensed attorney. This article does not in any way establish an attorney-client relationship. That relationship can only be accomplished with both parties signing a mutual, written agreement.
