What Happens If Your Spouse Owes Back Taxes?
When your spouse owes a tax debt to the IRS or a state tax authority, you may be liable for that tax’s repayment. It depends on when your spouse incurred the tax debt, your tax return filing status, and other factors. Our guide will help you understand the consequences of your spouse’s unpaid tax debt.
Marriage often brings certain tax benefits such as increased income thresholds for different tax rate brackets along with deduction and credit opportunities. However, marriage can also present risks as a taxpayer if you do not have strong knowledge of your income, finances, and tax obligations. If your spouse lies on your return, for example, you may be unaware of the inaccurate income reporting and the unpaid tax debt that will likely follow. It's important to know your rights as a married taxpayer and how you can protect yourself from the unpaid taxes of your spouse. Here's what you need to know about dealing with your spouse's back taxes.
Your Tax Filing Status Will Affect Your Liability for a Spouse’s Unpaid Tax
As a married taxpayer, you have two filing status options when you prepare your federal income tax return and submit it to the Internal Revenue Service (IRS). You and your spouse can file as either married filing jointly or married filing separately. When signing your tax returns, you and your spouse certify the accuracy of the reporting, and you both become responsible for the tax bill. At the same time, you also take responsibility for any underreporting or underpayment of tax and any resulting penalties.
In other words, spouses who submit joint tax returns will assume responsibility for both spouses’ tax debt obligations on the return. In contrast, married filing separately taxpayers only certify their individual income and tax liability. If you file separately, you're only responsible for the tax debt shown on your individual return unless you live in a community property state.
Are You Liable for Tax Liabilities a Spouse Accumulates During Marriage?
If you file your tax return as married filing jointly, you are liable for the tax liabilities regardless of whether they relate to you or your spouse. You are generally liable for the tax liabilities that a spouse accumulates during marriage when you submit your tax returns under a married filing joint status. When you file a joint tax return, the IRS views you and your spouse as a single taxable entity and will seek to collect owed tax amounts from either party, regardless of who earned the income resulting in tax liability.
In contrast, if you use the filing status of married filing separately, you are only liable for your own tax bill. Again, however, this rule changes if you live in a community property state. There are more details on that below. Here are some other questions you may have about taxes your spouse incurs while you are married.
Are You Liable for Your Spouse's Tax Debt From Their Business?
Your liability for your spouse's business taxes depends on the business structure and how you file taxes. If the business is a sole proprietorship or a partnership, the profits are pass-through. That means that they aren't taxed on the business level, they are taxed on the personal level. If you own the business with your spouse, you are naturally responsible for the business's taxes. However, if you don't own the business jointly, your liability for your spouse's tax debt depends on how you file your taxes. If you file jointly, you will be responsible for the business's taxes on your joint return. But if you file separately, you won't be responsible.
If your spouse owns a corporation, the corporation will pay its own income taxes, but your spouse will have to report any income or dividends that they receive from the company on their tax return. Again, you will be responsible for the taxes due to this income if you file jointly. You won't be responsible if you file separately.
Of course, there are other business taxes such as sales taxes, payroll taxes, and excise taxes to name a few. Generally, if you don't own the business, you won't be liable for these taxes. However, you still need to be careful. You own property with your spouse, and in a lot of cases, the IRS may be able to seize jointly owned property even if just one person owes the tax.
What Can the IRS Do to Collect Unpaid Taxes Against Married Taxpayers?
If you fail to voluntarily pay owed back taxes, the IRS may take certain actions against you or your spouse to collect the owed tax:
- Withhold or offset your tax refunds in future years.
- File a federal tax lien notice on your property.
- Serve a notice of levy to seize your property.
The IRS can attempt to collect unpaid tax from any of your personal or real property. This includes property such as bank accounts, investment accounts, wage garnishment, and other personal belongings of value.
When Can Innocent Spouse Relief Be Used If I Am Liable?
In some situations, the IRS will provide innocent spouse relief to those who unknowingly submit tax returns when their spouse underreported taxable income, claimed excessive credits, or misrepresented other necessary tax information. To qualify for innocent spouse relief, you must meet certain eligibility criteria:
- You filed a joint return that understated your tax obligations because of your spouse’s erroneous item (i.e., a misstated calculation of income, deductions, credits, or property basis).
- You can prove that when you signed the joint return, you either didn’t know and didn’t have a reason to know that your spouse understated their taxes.
- Holding you accountable for your spouse’s understated tax would be unfair under the circumstances.
For the element of fairness, the IRS will consider whether you received any financial or other benefits more than typical support. To maintain eligibility for innocent spouse relief, you must initiate the request within two years from when the IRS started its collection actions against you. However, if you apply for equitable relief, you have three years from the date you paid the tax to request a refund and up to 10 years from the tax filing deadline to request relief from the tax liability.
Separation of Relief If Your Former Spouse or Late Spouse Has Unpaid Taxes
In addition to innocent spouse relief, you may have the opportunity to avoid your spouse’s unpaid taxes through separation of liability relief. Separation of liability relief is when you distinguish your tax liability from your spouse on the joint return as though you had filed separately. To qualify for separation of liability relief, you must meet one of the following requirements:
- Be divorced or separated from your spouse.
- Be widowed.
- Not have been a member of the household as the spouse you filed the joint return within the 12 months ending on the date you file for relief.
Separation of liability relief also requires that you did not have actual knowledge of understatement of tax. However, you can have knowledge of the situation if you were coerced to sign the return or if you were under duress at the time when you filed.
Equitable Relief When It's Unfair to Hold You Responsible for a Spouse or Former Spouse's Back Taxes
Equitable relief is a final method of innocent spouse relief the IRS offers to spouses or ex-spouses in situations where it would be unfair to hold them liable for their partner’s understatement of tax. You can also apply for equitable relief if your spouse underpaid the taxes. For instance, this might apply if you thought your spouse paid the tax bill, but they stole the funds for personal use. In cases of equitable relief, the IRS will consider factors such as abuse or a lack of financial control when deciding.
How Do Community Property States Deal With Spouse Back Taxes?
In community property states, you are generally responsible for your spouse's tax bill even if you file separately. To give you an example, imagine that you live in a community property state, you report $5,000 in income on your return, and your spouse separately reports $95,000 in income. In a common law state, you're only responsible for the tax bill on the $5,000 of your income. But in a community property state, you are responsible for half of the total income -- in this case, that's $50,000.
However, community property states have different rules concerning both IRS and state tax debts. You may have different options for avoiding your spouse’s tax liability if you live in a community property state such as:
- New Mexico
To benefit from your state’s community property laws, you will usually have to file your tax returns as married filing separately. However, the rules vary. That's why it's critical to work with a tax pro who has experience in your particular state. They can help you deal with both the IRS and your state tax agency.
Married Filing Separately and Spouse Owes Back Taxes
When you submit tax returns as married filing separately, you are usually only liable for the taxes owed on your income. That means the IRS will have difficulty going after your assets to collect the unpaid taxes of your spouse. Again, the rules are different in community property states. In all cases, even though you won’t technically be liable for your spouse’s unpaid tax, you may find your joint assets (e.g., joint bank accounts) with your spouse in jeopardy because of the IRS’s efforts to collect the owed tax. Additionally, gifted property from your spouse could also find itself the target of tax liens or levy if the transfer was made to avoid payment of unpaid tax.
Can You Be Liable for a Spouse’s Premarital Taxes?
You won’t generally be liable for a spouse’s underpayment of taxes for years before the marriage. As mentioned above, your liability for a spouse’s unpaid tax is most concrete in situations where you filed jointly. Although, you may have to deal with the consequences of your spouse’s unpaid tax during the marriage and it may impact any joint assets you have – similar to situations where you submit as married filing separately. The IRS has 10 years from the date of assessment to collect unpaid tax, which means spouses could have fallout from their partner’s tax liability well before they ever married.
Can the IRS Take Money From My Spouse?
It depends on the situation. If you owe taxes from a joint return that you filed with your spouse, the IRS can go after your spouse for the tax debt incurred from that return. However, if you have tax debt incurred from a separately filed return, from a business that your spouse doesn't own, or from a return jointly filed with another person, your spouse isn't liable. The IRS can't take money from your spouse for these taxes.
If you have unpaid taxes and you want to protect your spouse, the best thing to do is make arrangements to take care of the tax debt. If you set up a payment plan, get an offer in compromise, or make other arrangements, the IRS won't have to enforce involuntary collection actions against you or your spouse.
Can the IRS Take My Tax Refund for My Spouse's Debts?
Generally, the IRS cannot take your tax refund for your spouse's tax debts. If the IRS seizes your joint tax refund to cover a debt related solely to your spouse, you can request to get your portion of the refund back. This is called Injured Spouse Relief.
To give you an example of how injured spouse relief works, imagine that your spouse owes $2,000 in back taxes from 2018 and $3,000 in child support from 2020. You get married in 2021 after they gave incurred these debts. Then, you file a 2021 return jointly and earn a $5,000 tax refund. However, the IRS keeps the entire tax refund to cover your spouse's debts. You think this isn't fair so you apply for Injured Spouse Relief. The IRS agrees that you should not be responsible for your spouse's old debts so the agency looks at your return and it figures out which portion of the refund is due to you. Let's say that you and your spouse made the same amount of money, and half of the refund was yours. In that case, the IRS will send you your half of the refund ($2500).
When Can the IRS Garnish My Wages for My Spouse's Tax Liability?
If you filed married filing jointly, the IRS can garnish your wages from your spouse's tax debt on that return. The IRS can actually garnish both of your wages in this situation. With wage garnishments, the IRS only leaves you a very small amount to live on -- the exact number depends on your filing status, number of dependents, and costs of living in your area. If the IRS says it's going to garnish your wages, you should make arrangements on the tax bill before that happens. Garnishments can be harsh. However, the IRS won't garnish your wages if your spouse has a tax debt from a married filing separately return or from a tax debt incurred before the marriage.
Can the IRS Hold Me Responsible for my Spouse's Ex-Spouse's Tax Debts?
The IRS cannot hold you responsible for unpaid taxes due to your spouse's ex-spouse. However, in some cases, your spouse may still be liable for their ex's tax debts, and that can affect you. To give you an example, imagine that your spouse filed a joint return with their spouse for tax year 2018. They didn't pay the tax bill, and the majority of the bill was due to the ex. In 2020, you and your spouse got married. In 2021, the IRS contacted your spouse about the unpaid debt.
Because a joint return was involved, your spouse is responsible for that old debt. If your spouse or their ex doesn't pay, the IRS may take involuntary collection actions against your spouse. This can include wage garnishments, bank account levies, and asset seizures. Remember the IRS has 10 years to collect on unpaid taxes so this cloud can hang over you for a while. If your spouse believes that they are truly not responsible for their ex's tax debt, they may want to look into innocent spouse relief.
Do I Owe My Spouse's Taxes If We Get Divorced?
If you file jointly, you will continue to be responsible for the taxes owed on your joint return even after your divorce. If possible, you should ensure that the divorce decree stipulates who should pay the taxes. However, it's important to note that a divorce decree doesn't necessarily override the IRS's rules. The IRS may still have the right to hold you responsible for your spouse's tax liability from a joint return, regardless of what the decree says. That said, if you get a divorce or are separated, you may be able to seek relief on your spouse's part of the liability through the IRS's separation of liability program. If you qualify, this program breaks down the return and figures out who owes what. Then, you're only responsible for your portion of the bill.
What Can You Do to Protect Yourself When Your Spouse Owes Taxes?
When you become aware of your spouse’s unpaid tax or receive a notice from the IRS, you should consider a few different actions. The first step may be to consult with a tax attorney to get a better sense of the validity of the unpaid tax claims and your options for possible innocent spouse relief or other pardons. You may need to take actions to separate your finances such as opening your own bank account and diverting any W-2 wages or other income to this account instead of to your joint accounts. You will also likely need to cease filing joint returns with your spouse.
Find a Local Tax Professional Near You with TaxCure
At TaxCure, we have a large network of tax attorneys and other tax professionals who provide representation and advice to spouses dealing with the aftermath of their partner’s unpaid taxes from underreporting. If you need help obtaining spousal relief or received notice from the IRS, find professionals nearest you to get the assistance you deserve. You can start your search here by viewing local professionals with experience with spousal tax problems.