Injured Spouse IRS Form 8379 Explained - John R. Dundon II, Enrolled Agent
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Injured Spouse IRS Form 8379 Explained

Injured Spouse IRS Form 8379 Explained

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.)

Community and separate debt – Community property states have definitions similar to community property to define community debt versus separate debt. A debt that existed before marriage is considered separate debt. For our purposes, this includes tax liabilities incurred before marriage.  Community debt would include the same characteristics as community property. These include liabilities entered into while married in a community property state or any debt that is agreed upon by both spouses as community debt. However, other factors impact whether a debt is community debt or separate debt. In Wisconsin, for example, if the debt was incurred while married, but not for the benefit of the marriage or family, this would be considered a separate liability and not a community debt. Remember, property and debt in community property states are generally assumed to be community debt unless proven otherwise.

Community and separate Income – Another category to consider is community income versus separate income. Any income from community property, wages, self-employment income, or community property real estate is generally considered community income. Texas has rules where some of these income items are community income and some are separate income. Separate property income is income belonging to the spouse who owns the separate property. For example, a spouse earning dividends from a stock she owned prior to marriage would include this as separate income. This is not always the case, however, as Idaho, Louisiana, Texas, and Wisconsin consider the income to be community income but the property to be separate property. For this and other reasons it is imperative to check the community property laws for the particular state you are dealing with.

Tax Consequences of Community Property states – In community property states, spouses are entitled to fifty percent of each other’s community income and are therefore liable for fifty percent of each other’s community taxes.  Income and taxes on separate property are isolated to the spouse who owns the separate property and earns the separate income.  Even if the tax liability was incurred before marriage or it is a tax liability from separate property, a spouse may be taking on some or all the responsibility for repaying it.  This is because the calculation to determine how much of an overpayment will be applied to a debt may include the liable spouse’s tax payments and a portion or all of the non-liable spouse’s tax payments.

You may be asking, “Wouldn’t the nonliable spouse be entitled to half the liable spouse’s overpayment as a refund?” After all, because it is a 50–50 income and tax relationship in community property states, the non liable spouse should be entitled to half the other spouse’s refund amount. On the surface this makes sense because in some states a portion of the non-liable spouse’s overpayment is applied to the debt. However, some states have accounted for this by instituting “if-not-formarriage” provisions. In other words, if one spouse owes a separate tax liability, his or her income and tax payments would still exist if there were no marriage. If not married, his or her current year tax liability would likely be different, but the tax debt would still be owed and any amount overpaid for the current year would be applied to that liability.