05 Mar Injured Spouse IRS Form 8379 Explained
Posted at 00:00h in Injured Spouse Relief
IRS Form 8379 (Injured Spouse Allocation) helps calculate the allocation of income and tax liability to each spouse for the purpose of determining how much of an overpayment should be applied to a spouse’s liability and how much is refunded to the non-liable spouse. For tax purposes, a liability includes debts for federal or state taxes, child support, and delinquent student loans. Essentially, the calculation separates the spouses’ tax amount due and tax payments to determine how much of the payments are applied to each spouse. It can then be determined how much of a refund the non-liable spouse would have received.
An injured spouse is entitled to segregate his or her income and tax payments from the other spouse for purposes of claiming a refund. The injured spouse is still liable for income tax on his or her portion of joint income, such as taxable interest received on a jointly-owned savings account. However, when the couple lives in a community property state, the rules can vary as to how the liability and payments are divided. This will have an impact on the non-liable spouse’s refund, sometimes to the spouse’s detriment. On a jointly-filed return, the IRS considers all tax payments made for the year to have been made for the collective benefit of the spouses. Therefore, if an overpayment was made, it gets applied to the joint liability. If one spouse would have had a tax refund coming that was instead applied to his or her spouse’s current or past tax liability, the non-liable person may be considered an injured spouse. To qualify as an injured spouse, the taxpayer must have had wages or other earnings and must have made payments to a taxing entity such as the IRS or state government. If all earnings and/or tax payments were from the spouse who owes the debt, there effectively is no injury to the non-liable spouse.
Community and separate Property – The rules for determining community property vary among the community property states. Generally speaking, property acquired while married will constitute community property. Some states include property that is obtained by award for personal damages, while other states categorize this as separate property. Any other property that is agreed upon by spouses to be community property will be treated as such. Some community property states identify what is separate property, and if a particular piece of property does not fall under the separate property category, it is assumed to be community property. Many states assume all property is community property unless proven otherwise. For this reason it is advisable to keep separate property apart from community property and not commingle assets. By doing so you have created a paper trail back to the original source of the separate property.
Separate property includes assets that were owned before marriage, earnings while living in a non-community property state, assets received as a gift or inheritance after marriage, separate funds exchanged for separate property while married (for example, if money held in an account before marriage is used to buy an investment after marriage and the ownership of the investment remains the same as the funds were before marriage), property agreed upon by both spouses that was converted from community property to separate property as allowed by state law, and a portion of property bought with separate funds that was also bought with community funds (for example, a house purchased with equal amounts of separate funds and community funds would be fifty percent separate property and fifty percent community property.)