- How Does Marriage Affect Taxes When One Itemizes?
- Can You Stop Paying Federal Income Taxes at Age 70?
- Is Retirement Income Exempt From State Income Taxes?
- Do You Pay State Income Taxes Based on Where You Lived or Where Your Income Was Earned?
- Can Georgia Charge Income Taxes on Income From Florida?
- Are Non-Ad Valorem Taxes Deductible for Income Taxes?
Spouses have the option of filing either joint returns or separate returns at tax time, and most choose joint returns. If you do, you're not responsible for just half the resulting tax liability – you're responsible for 100 percent of it. The Internal Revenue Service can come after you for the entire debt if your spouse shrugs off his responsibility, even if you didn't earn any of the income personally.
When spouses file a joint married return, they become jointly and severally liable for the tax due, plus penalties and interest if the return includes any errors or omissions. This allows the IRS to demand full payment from both spouses, or from either spouse in the event of divorce or death. A joint filing has the effect of creating one taxpayer out of two, at least where the IRS is concerned, so both you and your spouse owe the entirety of the debt.
If you file a separate return instead, you're not responsible for paying taxes on half of all marital income. You're only responsible for any tax liability resulting from what you personally earned. For example, if you earned $30,000 and if your spouse earned $120,000, you'd pay taxes on $30,000 in income, not $75,000. You'd have no responsibility for errors on your spouse's return, but you may have to give up a bit for this protection. The IRS prohibits married taxpayers who file separately from claiming some tax deductions and credits. Your separate return also only applies to the tax year in which you file it – it doesn't erase anything that's gone before. If you previously filed joint returns, you remain responsible for those taxes.
The rules blur a little in the nine community property states: Arizona, New Mexico, Nevada, California, Washington, Wisconsin, Louisiana, Texas and Idaho. In these jurisdictions, state laws give the IRS a little more power. Even if you and your spouse file separate returns, if your spouse defaults on any taxes he's personally responsible for, the IRS can still garnish up to half of your earnings for payment because your earnings are community property, jointly owned by both of you. Additionally, if you file a joint married return, the IRS can collect the resulting tax debt from your separate property. For example, if you have assets you acquired before you got married, these are typically solely yours and they're not vulnerable to community or marital debt – unless it's the IRS that's trying to collect. This holds true in the 41 common law states as well, because you're both fully responsible for the tax owed.
In some cases, the IRS takes mercy on spouses who don't fairly owe an entire tax debt resulting from a joint married return. However, this innocent spouse relief usually relates to penalties and interest associated with a faulty joint return, not the basic tax owed on joint income. You'd have to prove that your spouse committed the error, that you had no knowledge of it when you signed the joint return, and that it would therefore be unfair to collect the resulting tax debt, penalties and interest from you. If you think you might qualify for this relief, speak with a tax professional because the rules for qualifying are complex.
- American Institute of CPAs: The Dilemma – Married Filing Jointly Vs. Separately
- Forbes: When an Innocent Spouse Seeks Tax Relief
- The New York Times: Some Advice for Wary Spouses – Consider Filing a Separate Return
- IRS: Collection of Taxes in Community Property States
- Bankrate.com: Community Property, Common Law, Assets and Debts