Will My Spouse’s Tax Debt Affect Me?
Tying the knot with your significant other means the joining of two lives, love and possibly tax debt. Whether or not you become liable for your partner’s tax debt will depend on:
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- The status of your relationship at the time your partner acquired the debt.
- Whether or not you filed taxes separately or jointly.
Filing jointly is one of the financial perks of getting married. Couples filing jointly tend to receive tax breaks, which is usually good as long as your partner doesn’t have any major tax debts you don’t know about. The sections below will explain how tax debt works once you’re married and give you an idea of where you and your partner stand.
How tax debt works
Tax debt is acquired when you fail to pay your taxes before the deadline of that tax year, and therefore, owe the IRS. Even if you filed your taxes on time and paid a portion of the tax bill, the leftover balance of unpaid taxes will still be deemed as tax debt. If you end up incurring tax debt, it’s important that you learn how to manage it responsibly so that it doesn’t become too big of a problem.
Unfortunately, tax debt will increase over time. When you don’t pay your taxes, you end up with penalties tacked on to the total amount that you owe. Usually, the IRS will charge a 0.5% penalty to your tax debt after you’ve failed to pay, however in some instances, the IRS can charge up to a 25% penalty.
The IRS will not only charge you a penalty on your total tax debt, but they will also charge you interest. If you wait too long to take action, you could end up with a serious amount of debt. In some cases, you may be able to prove that you had a “reasonable cause” for not being able to make the payment, in which case the IRS may reduce your penalties, but will continue to charge interest. Generally, examples of “reasonable causes” include instances that involve:
- A death in the family.
- A natural disaster.
A lot of the times if the reason for being unable to pay was due to unpredictable circumstances that were out of your control, the IRS will either reduce the penalties or consider forgiving them altogether.
How tax debt incurred before marriage can affect a spouse’s taxes
If you just recently got hitched or plan to in the near future, there are probably a lot of things on your mind. If you’ve landed on this page, it’s probably because you’re concerned about inheriting your spouse’s tax debt. While there isn’t just one single answer to whether or not you will become liable for your partner’s tax debt, there are a few factors that will determine it.
It’s going to depend on the status of your relationship at the time the debt was incurred as well as whether or not you filed jointly.
These are the different scenarios and how they generally play out:
- Your spouse incurred the tax debt before you were married: In this situation, you will not be liable for your spouse’s tax debt, because it was acquired before you were legally joined. In other words, if your spouse owes debt due to unpaid taxes, it is solely their legal responsibility to pay. However, because of this, you might be eligible for “Injured Spouse” status, which means the IRS can intercept your income tax refund to cover the cost of your spouse’s unpaid taxes. This can occur as a result of filing jointly, but even then, it’s possible to get some of your refund back.
- You and your spouse filed jointly the year that your spouse incurred tax debt: Your liability in this situation is going to come down to a few factors:
- Were you aware of the issues that led to your spouse having unpaid taxes?
- Are you and your spouse still together?
- Did you benefit from the fraudulent IRS tax return in any way?
If you were truly unaware of your spouse’s inability to file correctly, you might be eligible for an “Innocent Spouse” status. However, in order to qualify, you would need to have proof that you were not aware of this and had no way of knowing. In this case, you also couldn’t have benefited from the refund in order for Innocent Spouse to apply. In other words, you would also need to show proof that you did not benefit from the understated taxes. If you are approved for Innocent Spouse, you would be freed of any liability of your spouse’s back taxes.
- If you were no longer together when at the time the filing took place: Old habits die hard, even in the context of failed relationships. If you and your spouse are separated or close to getting a divorce, it’s still possible for a joint filing to occur. If this happens, you might be eligible for “Separation of Liability Relief,” which conveys that you and your spouse are no longer married, and that you would like to assume partial liability. Separation of Liability Relief can be achieved if you are able to prove that you are either divorced, separated, or have not lived together in the 12 months leading up to your claim.
There are several determining factors when it comes to whether or not you will be liable for your spouse’s tax debt. There is no simple answer and everyone’s situation is different yet manageable if you take the time to deal with it. If you are concerned about the outcome, you might want to consider consulting a tax professional to give you advice. A tax professional can look at your taxes and offer you guidance so that you and your spouse can make the best decision for your unique situation.