Spouse or Fiance Owes Back Taxes?
Impacts and Solutions
What if My Spouse or Fiancé Owes Back Taxes?
When you’re married or are soon to be, many issues may arise when starting to merge and discuss finances. Debt of any kind can put a strain on this process, and this includes tax debt. A common question you may be asking yourself is, “If my spouse owes back taxes, am I liable?”
Any unresolved tax issue, such as unpaid back taxes, a tax audit, tax fraud, an unfiled tax return, tax penalties, or other problems, could get in the way of a smooth transition for everyone. Unfortunately, your spouse’s tax debts may become your liability after you’re married if you don’t take the right steps. This could mean a major financial burden on you, using your refund to cover their tax liability, joint asset seizure, and other issues.
So, if your spouse owes back taxes, are you liable? This guide walks through what you need to know about filing jointly and what to do if your spouse or fiancé owes back taxes.
How Do Back Taxes Impact Marriage?
First, let’s discuss what back taxes are and why taxpayers may owe them. Back taxes are taxes owed from a prior year when the tax bill wasn’t fully paid. Taxpayers may owe back taxes at the state or federal level, and, unfortunately, the tax burden may continue to grow with added penalties and interest accrual on the original balance.
Many factors may lead to someone having back taxes. For example, a taxpayer may fail to report all the income they earned during a given year, or they may just have trouble covering the full bill in the year it’s due. Some people fail to even file a tax return for a given year.
The failure to file penalty from the IRS equals 5% of the unpaid taxes each month, not to exceed 25% of the balance. The failure to pay penalty is 0.5% of the unpaid taxes each month, not to exceed 25%. The amount of interest accrued on penalties will depend on the type of penalty and how much you can pay until your balance is paid off.
When you get married, the tax debts of your spouse may become your own. This means if your spouse is unable to pay what they owe the IRS, you can be held liable for that responsibility. However, this depends on your filing status after you tie the knot.
Filing Jointly When Your New Spouse Owes Back Taxes
For married couples who file jointly, you have “joint and several” liability on taxes, penalties, and interest owed, and if you earn a tax refund, you own that together as well. That means the IRS can seize the tax refund to cover debts your spouse incurred before marriage. However, in this case, you may be able to get relief through the inured spouse program. For best results, apply before you file, and the IRS will separate out each spouse’s portion of the refund and only apply your spouse’s portion to the old debt.
Filing Separately When Your New Spouse Owes Back Taxes
If you go with the married-filing-separately option, you will not be responsible for your spouse’s current or old tax debt. Even though you are married, filing separately means you are only responsible for your own tax reporting and tax liability. However, married filing separately is usually not an advantageous filing status, and it can increase your tax liability or reduce your refund.
Note that community property states have different rules. Even if you file separately, if you live in one of these states, you are usually still responsible for your spouse’s tax liability for the year of filing. Note that differing state and federal tax laws may apply in these states. The nine community property states are:
- Arizona
- California
- Idaho
- Louisiana
- Nevada
- New Mexico
- Texas
- Washington
- Wisconsin
All the other states are considered “common law” states.
Before making any big decisions, determine what kind of state you live in when you’re asking, “Should I file separately if my husband owes taxes?” or “Should I file with my new wife if she owes back taxes?” Figure out if filing separately will protect you from your spouse’s tax liability.
Also, consider when their tax debt was incurred. Because these matters can be complicated and even heated, talk to a tax professional to help you navigate the process.
Conducting Due Diligence Before Marriage
The best way to avoid unpleasant surprises is to discuss taxes and finances with your partner before the wedding. Tips for having these conversations and ensuring they go smoothly include the following:
- Emphasize financial transparency and its importance in the marriage.
- Discuss the potential consequences of not disclosing all tax liabilities or other forms of debt.
- Sift through any applicable laws and regulations, on the federal level and for your state.
- Outline separate and joint financial goals.
- Remove any judgment about debt, and approach solutions objectively.
Throughout these discussions, you may discover that your future spouse owes back taxes. If this is the case, take these steps to come to a solution:
- Review the amount of debt and when it happened.
- Discuss the reasons it occurred and whether it’s likely to happen again.
- Ask about their efforts to get the debt resolved thus far.
- Be open to talking about challenges they are facing with it.
Tax debt could happen to anyone, so try to remember that when talking to your partner. However, taking on tax liability is no small matter, so it is important to take it seriously and have clear discussions about causes and solutions moving forward.
The Basics of Marital Tax Liability
Let’s dig in more to help you uncover whether or not you’re responsible for your spouse’s tax debts after you get married. This takes fully understanding how liability is different before and after a marriage and how the IRS determines responsibility for tax debts in a marriage.
Before you get married to someone, you are only responsible for your own tax liability. You file a tax return as a single taxpayer, report your income and expenses for the year, and pay what you owe to the IRS.
After you get married, you either file jointly or separately. Most people file jointly to receive certain tax credits and deductions, and it’s generally considered to be the most financially advantageous option.
However, filing separately also may have its advantages. A few reasons married couples decide to file separately include:
- They are going through a legal separation.
- One or both spouses are paying off their student loans under an income-driven repayment plan, meaning they can have a lower payment amount based solely on their individual income.
- One spouse wants to protect themselves from a tax issue with their spouse, including tax evasion or tax debt.
Filing jointly means you may be responsible for your spouse’s past, present, and future tax debts. Your filing status is important, so consider the pros and cons of each, and talk to a tax expert about what the right move is for you and your spouse.
Remember that the IRS determines your tax liability based on your filing status, the timing of tax debt, and whether or not you apply for spousal relief, discussed next.
What Is IRS Spouse Relief?
When you’re married or considering marriage, get to know something called innocent spouse relief. This form of relief offered by the IRS can offer you protection from the tax issues your spouse is facing, including tax debt.
The two types of spousal relief are injured spouse relief and innocent spouse relief:
- Injured spouse relief: If your spouse owes tax debt, you may have used money from your tax refund to pay off those debts. This form of relief allows you to reclaim that money taken out of your refund.
- Eligibility: You could qualify for injured spouse relief if you filed a joint return, applied your refund to pay off your spouse’s overdue debts, and were not responsible for that debt. If you live in a community property state, you may also be eligible even if you filed separately.
- Innocent spouse relief: If your spouse made an error on your joint tax return, and you didn’t know about it, you can apply for this form of relief to avoid having to pay anything additional to the IRS.
- Eligibility: You may qualify for innocent spouse relief if you filed a joint return, taxes were understated on the return, you weren’t aware of these errors, and you had no reason to be aware of them. Errors on the return could be understated income or mistakes in deductions, credits, or asset values.
- Separation of liability: When one of the joint filers has underreported tax on a jointly filed tax return without the other’s knowledge. This can divide the taxes owed between the two joint filers based on factors such as who earned the taxable income and who was responsible for the errors on the tax return.
Another form of relief is if you failed to consent to filing a joint return with your spouse or if you were coerced into signing a fraudulent return. The IRS states that a tax return is considered invalid if you did not consent to the joint filing.
How Tax Liens and Levies Impact Joint Assets
You want to avoid being liable for your spouse’s back taxes. Of course, you don’t want to have to pay off the debts yourself. But another reason is the potential impact of these debts on your shared assets.
If you own property jointly, you may have to deal with tax liens when your spouse isn’t paying what they owe. A tax lien is a legal claim the IRS makes on your property if you owe tax debt. After receiving a tax bill, a taxpayer may have a lien on their assets if they neglect or refuse to pay that bill on time.
While a lien is a claim on property, a levy is the next step, where the government actually seizes the property to pay off a tax debt. The IRS may even be able to garnish your wages for your spouse’s old tax debts. This could happen with any type of joint asset or property you and your spouse own, and it can quickly become a problem for you if your spouse owes the IRS.
Solutions and Steps to Protect Yourself
Fortunately, there are preventative measures you can take before getting married or when you find out your spouse owes back taxes. Consider these steps and potential solutions:
Explore Other Relief Options with the IRS
Your intended spouse may be able to negotiate with the IRS to get their debts resolved without having to seize property or impact your financial situation. Ideally, you should help them resolve their taxes before you get married so you don’t have to worry about any unwanted consequences after the big day.
A payment plan, or installment agreement, is when a taxpayer pays an agreed-upon monthly amount to the IRS until the debt is paid off. An offer in compromise is when a taxpayer sends in an offer to resolve their tax debt at a lower amount because of a financial hardship.
These could be viable options to avoid taking on tax debt when your spouse is dealing with a high tax bill.
Consider a Prenuptial Agreement
A prenuptial agreement allows you to agree upon what will happen to property and assets in the event of a divorce. This agreement could state which party is responsible for which tax liabilities—for example, one spouse may be solely responsible for property taxes on a home they purchased before the marriage. This document can help you protect yourself against any taxes that apply to separate property, even if you file jointly.
Note, however, that civil agreements don’t necessarily trump debt collection laws. Work with a reputable attorney if you want to ensure everything is ironclad.
Keep Separate Financial Accounts
If you’re worried about taking on the financial responsibility of your spouse’s tax debt, consider strategies like keeping separate bank accounts and thus putting some separation between each of your income and savings. This can help you ensure you’re not logistically on the hook for covering your spouse’s debts.
Seek Professional Advice
Tax and financial matters are already complicated. When you get married, it can be even more stressful to stay on the same page and continue to set and reach financial goals. Consider financial counseling or another safe space to discuss these matters.
It’s always a good idea to discuss your situation with a financial or tax expert who can explain all applicable laws, provide advice, and guide you forward to help you and your spouse navigate financial challenges.
Moving Forward When Your Spouse Owes Back Taxes
Navigating unpaid back taxes by your spouse can be stressful and worrisome. By being proactive, putting preventative measures in place, having transparent discussions, and potentially filing separately, you can ensure that you’re not responsible for their tax debt.
Any successful marriage will have a solid plan in place for managing finances and maintaining financial health. Taxes are a big part of that.
FAQs:
Will marrying someone with back taxes affect my credit score?
Your credit report is still completely your own after marriage, and your spouse’s prior debts shouldn’t impact your score. However, any debt you take on together could impact your credit.
If my husband owes taxes can I file separately?
You can always decide to file separately from your spouse, whatever the circumstances. Research your state’s laws regarding your liability when filing separately.
How can I protect my assets if my spouse owes back taxes?
File under the married-filing-separately status, create a legal agreement that protects your assets, or talk to a financial expert about your other options. Be aware that if you own assets together, you could face tax liens on those assets, even if the tax debt is in your spouse’s now and incurred before the marriage.
Is it better to file taxes jointly or separately when one spouse has back taxes?
Filing jointly means you will be responsible for your spouse’s tax debt, unless the back taxes were incurred before you shared tax liability. Consider filing separately if you’re worried about your spouse’s ability to pay their tax bill.
Can the IRS take my refund for my spouse’s back taxes?
Yes, your refund can be used to cover your spouse’s tax liability. However, you can apply for injured spouse relief to reclaim these funds.
What are the steps to apply for innocent spouse relief, and how long does it take?
Use Form 8857, Request for Innocent Spouse Relief. You should file this form when you are first aware that you shouldn’t be liable for your spouse’s liability. Don’t file this form with your tax return—mail it to one of the addresses listed in the Form 8857 Instructions. The IRS states that it could take up to six months for requests to be reviewed.
Are there any tax relief programs for spouses not involved in their partner’s tax debt?
You can apply for innocent spouse relief, using the form listed above, if you discover your spouse made an error on their tax return, and you can apply for injured spouse relief if you don’t want the IRS to use your tax refund to cover your spouse’s tax debt.
How do prenuptial agreements affect liability for a spouse’s back taxes?
These agreements can outline shared liability in a divorce and whether each spouse is responsible for the tax liability of the other.
How do I prove I qualify for innocent spouse relief?
You must have filed a joint tax return, found that taxes were understated on the return, and didn’t know about the mistakes. The IRS will evaluate factors like the type of error, the amount of the error, your financial situation and employment, whether the mistake is recurring, and other factors to decide if you knew about the errors.
Get Tax Help Now
When you need assistance with your spouse’s tax debt or have questions about joint liability, back taxes, or other tax problems, contact the team at W Tax Group. Our tax attorneys and CPAs can help you break down any questions and tax issues.
