I is for Injured Spouse.
Injured spouse is perhaps one of the most misunderstood tax terms in the Tax Code. It just carries with it all kinds of baggage and associated terms, most of which have zero to do with actually being an injured spouse. So forget all of the things you think it means. You are an injured spouse if your share of your tax refund as shown on your joint return was, or is expected to be, applied against your spouse’s past-due federal debts, state taxes, or child or spousal support payments.
In most states, liabilities (for purposes of tax offset) attributable to an individual remains the obligation of that individual. It doesn’t matter if he or she gets married or gets divorced. However, when a joint return is filed, the tax ID number of the person responsible for the liability may trigger an offset of the entire refund. If you are an injured spouse, you may be entitled to get your share of the refund released to you.
Your share is determined by a formula: it’s not a pure 50/50 split. An allocation is made as if each spouse filed a separate tax return instead of a joint tax return. So, each spouse must allocate his or her own wages, self-employment income and expenses (and self-employment tax), and credits such as education credits to the extent possible on separate forms. Items that are commingled (such as interest earned in a joint bank account) would be equally divided. The Internal Revenue Service (IRS) uses that allocation to determine which portion of the refund, if any, would be due to the injured spouse.
Be careful, though, if you live in a community property state: the rules are very different. There are nine such community property states in the United States: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin (some wacky exceptions apply in Puerto Rico, Alaska, and several Native American lands). In community property states, refunds are considered joint property and can be used to pay towards certain obligations of either spouse. The IRS uses different rules in different community property states to calculate injured spouse relief depending on state law; check with your tax professional if you’re not sure how your community state treats overpayments and offsets.
To apply for injured spouse relief, you must file a federal form 8379 Injured Spouse Allocation (downloads as a pdf) as soon as you are aware that all or part of your share of a refund was, or is expected to be, applied against your spouse’s obligation. This usually happens when your spouse receives a letter or Notice of Offset. You must file the form for each year that you are requesting relief.
If you file federal form 8379 together with your tax return as a paper return, you’ll need to wait about 14 weeks for your refund. If you file electronically, expect to wait about 11 weeks. If you file a federal form 8379 after you’ve already filed your joint return, expect to wait an additional 8 weeks.
And here’s where the mom in me comes out for a minute. Everybody makes mistakes: nobody is exempt. We sometimes make poor choices. And life isn’t always fair: sometimes bad stuff just happens. But not every bad thing makes you a victim. And one bad choice doesn’t have to lead to another. I can’t tell you how many emails that I receive from soon-to-be injured spouses considering marriage when tens of thousands of dollars in back child support or other federal obligations are outstanding. In most cases, those aren’t the kinds of liabilities that just happen. Similarly, those aren’t the kinds of liabilities that automatically go to offset; there may be opportunities to make those right long before an offset occurs. If it’s ignored to the point that it goes to offset, it might be (but not necessarily is) indicative of bigger problems. If you’re considering marrying into this kind of situation, take a moment to consider what it might mean. And then remember that you have to apply for injured spouse relief every year that an offset occurs. Whether you like it or not, that means that you’re paying for someone else’s mistake every year.
One final caution: the term is easily confused with innocent spouse relief. It is important to note that this is not the same as innocent spouse relief. Innocent spouse relief is what you seek from the IRS when you become aware of a tax liability for which you believe only your spouse or former spouse should be held. Innocent spouse relief is restricted to, in most cases, individuals who are no longer married and who owe a joint federal tax liability. That’s a whole other ballgame than injured spouse relief.