It’s standard practice for the IRS and state tax agencies to withhold tax returns from those who owe severe debts to creditors. These agencies will also hold on to the tax refund of a spouse, even if the spouse isn’t in debt themselves. Individuals that are in danger of losing their tax refund because of a spouse’s debts have to take some measures to protect their finances from the creditor’s wrath.
When an individual has their income taxes withheld because of their spouse’s debts, the affected spouse is referred to by tax agencies as an “injured spouse.”
There are countermeasures that a spouse can take to avoid having their tax refund seized by the IRS. Hiring an experienced attorney would be the best measure. Specialized lawyers are dedicated to navigating all of the legal aspects and making sure their clients keep their tax refunds.
What Qualifies An Injured Spouse?
Someone can incur injured spouse status if they file jointly with their significant other who owes debts in the form of:
- Delinquent, unpaid child support
- State income tax liability
- Federal income tax liability
- Delinquent federal debts, such as student loans
- Overpayment of unemployment benefits that were not repaid
In such cases, the injured spouse will receive a letter from the Treasury’s Financial Management Services Department (FMS), informing them that a certain amount was taken from the original refund to honor the spouse’s debt.
Is There a Way To Get Around Becoming An Injured Spouse?
As a spouse, having a tax refund confiscated because of someone else’s debt is incredibly unfair. After all, some of these debts, such as back-owed child support, often have absolutely nothing to do with the injured spouse’s income or obligations.
Exemption Changes
The first thing the injured spouse can do is to change the exemptions claimed on their employee W4 forms. The goal is to break even so that there’s nothing for the tax agency to take at the end of the year. This process requires professional tax assistance to make sure the filing party doesn’t owe money from claiming too many exemptions.
Filing Status Change
Instead of married filing jointly status on their income taxes, the spouses could both file ‘married filing separate.’ In case of large debts or financial liabilities, it could be the best option for financial protection. A tax professional or tax attorney can always run the scenarios to determine what route is best for a couple’s unique individual and collective financial environment.
Complete File Form 8379
This is the Injured Spouse Allocation form. It consists of three parts. Part one is a series of qualifying questions, ensuring the individual qualifies as an injured spouse. The second part collects the names and tax ID numbers of both spouses, recording which party owes the debt. Part three asks for each spouse’s income allocations, adjustments, exemptions, deductions, other taxes, and other credits.
The form is used to determine which spouse is due to the majority of the tax refund. The would-be injured spouse receives their allocated tax refund portion in full, while the spouse owing a debt has their share of the return used to satisfy the debt.
The Illinois debt relief lawyers at Benveniste Law Offices can make sure that your spouse’s debt doesn’t interfere with your tax return. We can take the necessary preventive measures to manage debt issues to ensure that you funds go untouched by debt collectors. Contact us today for a free case evaluation to discuss your legal options.