What’s the difference between an injured and innocent spouse? Years ago I separated and the IRS withheld my tax refund because of unpaid tax from my now Ex. Do I have any way to get that back?
This is a great question. Taxpayers confuse “innocent spouse” and “injured spouse” all of the time. Here’s what you need to know.
When you file a joint income tax return, the law holds you and your spouse jointly and severally responsible for the entire tax liability. What this means is that Internal Revenue Service (IRS) may collect the tax due from the both of you – or from either one of you. This is true even if you later separate or get a divorce and it’s true even if your divorce decree says that your ex is responsible for the outstanding debt.
Typically, you remain liable for the tax unless you can prove that you didn’t know or had no reason to know about the liability. That might be the case because of unreported income (income received by your spouse or former spouse that was not reported) or an incorrect tax deduction, credit, or basis claimed by your spouse or former spouse.
Here’s an example. You filed a joint return with your spouse and later receive a letter from the IRS indicating that $5,000 in income was not reported. You find out that it was money your ex-spouse earned during the marriage that he failed to report – and you didn’t know a thing about it.
You would seek innocent spouse relief from the IRS when you become aware of the tax liability and you believe that it is not yours (meaning that it belongs only to your spouse or former spouse). In most cases, innocent spouse relief is limited to taxpayers who are no longer married.
In contrast, injured spouse relief applies to taxpayers who are married. You are an injured spouse if your share of your tax refund as shown on your joint return was, or is expected to be, applied against your spouse’s past-due federal debts (including student loans), state taxes, or child or spousal support payments. It typically happens when, after a joint return is filed, the tax ID number of the person responsible for the tax liability triggers an offset of the entire refund.
Here’s an example. Let’s you marry someone who owes outstanding child support payments. You file a joint return. You expect a refund but the IRS matches the tax ID number of your spouse to the outstanding debt and offsets the entire refund.
If you are entitled to injured spouse relief, you may be able to get your share of the refund released to you. Your share is determined by a formula: it’s not necessarily a 50/50 split. An allocation is made as if you and your spouse each filed a separate tax return instead of a joint tax return. That means each of you must allocate your own wages, self-employment income and expenses (and self-employment tax), and credits such as education credits to the extent possible on separate forms. Items that are commingled, such as interest earned in a joint bank account, would be divided equally. The IRS uses the allocation to determine which portion of the refund, if any, would be due to an injured spouse.
Be careful: if you live in a community property state, the rules are different.
I’m guessing from your email that the outstanding tax liability was assessed for a year in which you were still legally married. That means that your tax refund is fair game as far as the IRS is concerned – they’re trying to collect on the debt. If that’s the case, and you did not have reason to know about the debt, you may be able to apply for relief using federal form 8857, Request for Innocent Spouse Relief (downloads as a pdf). The statute of limitations for making a claim for relief is typically two years after the date on which the IRS first attempted to collect the tax from you (some exceptions apply).
Be aware that any claim for innocent spouse relief requires the IRS to reach out to your former spouse – even in cases of domestic abuse. I always urge taxpayers who may qualify for an injured spouse or innocent spouse relief to check with a tax professional for assistance.