How to protect one spouse’s share of a joint tax refund when the IRS can take it

The spouse who doesn’t owe a debt may be able to claim his or her share of the tax refund with a request to the IRS

By: Alison Flores  /  September 06, 2017
The spouse who doesn’t owe a debt may be able to claim his or her share of the tax refund with a request to the IRS

Sometimes, when spouses file a joint return and one spouse owes a debt, the IRS will take all or part of the refund to pay the debt. The most common scenario is when one spouse owes a debt subject to federal offset, such as past-due child support or past-due student loans, and the other spouse isn’t liable for the debt.

But under federal law, each spouse on a joint return has a separate interest in the jointly reported income and separate interest in the overpayment (refund).

When the non-indebted (“injured”) spouse wants to request his or her part of the refund after a refund offset, file Form 8379, Injured Spouse Allocation, to ask the IRS to split up the overpayment. If the IRS approves the request, the IRS will refund the injured spouse’s share of the refund, and apply only the indebted spouse’s share to the past-due debt.

Note: The IRS uses the term “injured spouse” to mean a person whose share of a refund from a joint tax return was applied, or is expected to be applied, to a past-due debt of the other spouse. It doesn’t mean one of the spouses was physically injured. Injured spouse claims are sometimes confused with “innocent spouse” claims. Innocent spouse claims may be filed in some cases where there was something not properly reported on a joint return and the improper item is attributable to the other spouse.

The rules for requesting injured spouse relief depend on state law

If both spouses lived in a community property state at any time during the tax year, the injured spouse can file Form 8379 as long as the couple filed a joint return. Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

In other states (common law states), the injured spouse can file Form 8379 if:

  • The indebted spouse and the injured spouse filed a joint tax return.
  • The joint return had a refund due, and the IRS applied (or will apply) some or all of the refund to a debt of the indebted spouse.
  • The debt is legally enforceable and past-due:
    • Federal tax
    • State income tax
    • State unemployment compensation debt
    • Child support or spousal support
    • A federal nontax debt (for example, a federal student loan)
  • The injured spouse is not legally obligated to pay the past-due amount (the indebted spouse is the only one who owes the debt).
  • The injured spouse reported income such as wages, taxable interest, etc., on the joint return.
  • The injured spouse has federal income tax withholding or made federal estimated tax payments, and/or the injured spouse claimed the Earned Income Credit (EIC) or other refundable credits on the joint return.

File Form 8379 as soon as possible

The injured spouse should file Form 8379 as soon as possible after learning that the IRS has applied or will apply all or part of his or her share of the refund to the indebted spouse’s past-due obligations.

File Form 8379 with an original or amended joint return, or by itself after the original or amended return was filed. Form 8379 must be filed separately for each year the injured spouse wants to claim injured spouse relief. Also, if the spouses later file an amended joint return (Form 1040X) to claim an additional refund, and the injured spouse doesn’t want his or her portion of the additional refund taken to satisfy a debt, the injured spouse must file Form 8379 with the amended return, even if he or she has already filed Form 8379 with the original joint return.

The injured spouse must file Form 8379 within three years of the due date of the original return (including extensions), or within two years of the date the tax was paid, whichever is later. In some circumstances, the IRS may extend the deadline for filing injured spouse claims relating to non-tax debt to six years (rather than the typical three years for tax debt).

Only the injured spouse should sign Form 8379 (the indebted spouse is not asked to sign).

How the IRS splits the refund

On Form 8379, the injured spouse should follow IRS guidance to allocate income, deductions, and credits between the spouses.

In community property states, the IRS will use each state’s rules to determine the amount that will be refundable to the injured spouse. The IRS allocates the EIC to each spouse based on each spouse’s earned income.

In common law states, the IRS will determine each spouse’s separate tax liability as if they filed separate returns. If an item doesn’t clearly belong to either spouse, it would be equally divided. If a deduction or credit wouldn’t be allowed if the taxpayers had filed separate returns, the IRS uses the deduction or credit shown on the joint return.

The IRS will then use a formula to begin the process of splitting the refund between the spouses:

Injured spouse formula

Then, the IRS will allocate credits and income tax payments to the spouse who made the payments or qualifies for the credits. Any child tax credit, child and dependent care credit, and additional child tax credit is allocated to the spouse who was allocated the qualifying child’s exemption. The IRS will allocate the EIC based on each spouse’s income. Joint estimated tax payments can be allocated in any way if both spouses agree. If they don’t agree, the IRS will make the allocation based on their respective tax liabilities.

Scenario

Jack and Diane are married and file a joint return. They live in a non-community law state. They claim Diane’s two children from her previous relationship as qualifying children. Jack has wage income of $10,000, and Diane has wage income of $30,000. Jack is $4,000 behind on child support payments and already received a Notice of Offset for past-due child support.

Here is how the allocation looks on Diane’s Form 8379.

Injured spouse chart

Here are their joint and separate tax liabilities. Note that the separate liability is calculated only for purposes of the formula to determine each spouse’s share of the joint liability and potential refund.

  • On a joint return, taxable income is $11,200 and tax is $1,123.
  • On Diane’s separate return, taxable income would be $11,550 and tax would be $1,273.
  • On Jack’s separate return, taxable income and tax would be $0.

To calculate each spouse’s share of the joint tax:

Diane: ($1,273 / $1,273 + $0) × $1,123 = $1,123

Jack: ($0 / $1,273 + $0) × $1,123 = $0

Their share of the refund is:

Diane: $2,000 (credit) + $936 (withholding) - $1,123 (tax liability) = $1,813

Jack: $364 (withholding) - $0 (tax liability)= $364

The IRS will also allocate any EIC between the spouses.

For Diane, requesting injured spouse relief could mean the difference between no refund and a refund of $1,813 plus the EIC.

How soon to expect the refund

While injured spouse procedures may allow the injured spouse to receive his or her share of a joint refund, the refund won't come quickly.

  • For an electronically filed return and Form 8379, the refund processing time is about 11 weeks.
  • For a mailed paper return and Form 8379, the refund processing time is generally about 14 weeks.
  • For a Form 8379 filed by itself after the IRS processed a joint return, the refund processing time is about eight weeks.

In the next article in this series, we will explain innocent spouse relief and how to request it.

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Author Name

Alison Flores

Alison Flores, JD, is a principal tax research analyst at The Tax Institute. Alison specializes in the Patient Protection and Affordable Care Act, same-sex marriage, tax preparer regulation, and individual income tax issues.

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