Married couples have the
option of filing a joint tax return or filing separate tax returns. If
only one spouse has income, the other doesn’t have to file a return,
although filing jointly may result in tax savings.
The only qualification
for filing jointly is that the couple be legally married as of December
31 of that year. Occasionally, it is beneficial for married couples to
file separate returns. However, in most cases, it costs more, because
each couple is considered to have earned 50% of the other spouse’s
income for tax purposes.
Of course, both spouses
are fully liable for all the taxes owed on a joint return. But only the
spouse in whose name a separate return is filed is liable for his or her
income taxes. This is another reason why some married couples file
separately. This way they relieve each other of direct financial
responsibility, if the IRS should audit one of them, or if one can’t
pay a tax bill.
The only exception to this joint responsibility is the “Innocent
Spouse Rule”. This rule states that a spouse (usually an ex-spouse) be
relieved of liability if it was incurred before July 22, 1998. This rule
applies to all joint tax debts incurred as well as joint tax debts
before July 22, 1998, but paid afterwards.
An innocent spouse must show:
-
All or part of the tax understatement is due to
erroneous items of the spouse, and
-
He or she did not know and had no reason to know
there was an understatement, and
-
It would be unfair to hold the spouse liable.
Even
if a spouse does not qualify under the rule, the IRS can provide the
person with partial relief by dividing the tax owing. The IRS will allow
the spouse to recalculate his or her separate tax liability (what would
be owed under a separate return), and to pay just that amount.
The IRS can
deny innocent spouse relief if it determines that the spouse had actual
knowledge of the understatement and still signed the return. In this
situation, the only defense for the spouse is to say that he or she
signed under duress. If you are denied innocent spouse relief, you can
sue the IRS in Tax Court. You have to file your Petition within 90 days
of the denial notice date.
