'Injured spouse allocation' tax form can shield spouse from debt

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.

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Question Dear Sally,
I have a student loan in default that I took out before I was married 16 years ago. I couldn't get a job in my field for many reasons, and I stayed home to raise our children. We used the married jointly filing status for the 2015 tax year. My husband makes all the money in the household. My husband's $2,000 refund was seized by the Department of Education. What options does my husband have to retrieve that money? We live in Missouri. I think he should be entitled to all of that if he files IRS Form 8379. Is that true? – Lori


Dear Lori,
I can see you’ve done your homework. The fact that you live in Missouri, which is not a community property state, makes a big difference in whether the joint refund can be seized.

According to the Internal Revenue Service instructions for Form 8379, “Injured Spouse Allocation,” “In community property states, overpayments are considered joint property and are generally applied (offset) to legally owed past-due obligations of either spouse.” However, in a non-community property state, the refund is allocated as if each spouse filed a separate return. If creditors and collectors seize a refund or portion of a refund that is not allocated to the spouse that owed the debt, the injured spouse can file Form 8379 to reclaim the refund.

When both spouses have earned income, deductions and credits, determining how much of the refund should be allocated to each spouse can get complicated. In your case, with your husband earning all the family income, it’s fairly simple.

To receive a refund, your husband should file Form 8379. For each line in Part III of Form 8379, enter the total amount in column (a). Allocate that amount between you and your husband in columns (a) and (b).

For example, on Line 14, enter adjustments, such as IRA contributions or moving expenses, in column (a). Enter adjustments that belong to a specific spouse, such as IRA contributions, in the correct column. Allocate other adjustments as you determine.

If you used the standard deduction, enter the total amount in column (a), one-half of the standard deduction in column (b), and one-half in column (c). If you itemized deductions, allocate the deductions as you determine.

The IRS calculates the amount of your joint refund that should be allocated to each of you, based on the information you enter. Your husband should receive a refund for his share – which should be all or most of the refund assuming he earned all the income.

Do not include a copy of your joint tax return with Form 8379. Do include copies of your husband’s Form W-2 and any Form 1099 that shows income tax withheld.

It’s important not to confuse the “Injured Spouse Allocation” with “Innocent Spouse Relief.” The two IRS terms are very different. The Injured Spouse Allocation is intended to protect you when all or part of a person’s refund is seized, or is expected to be seized, for a spouse’s legal debts. Innocent Spouse Relief, on the other hand, is a remedy when you and your spouse or ex-spouse owe income tax on a joint return, and you should not be held liable for the tax.

According to the IRS, it takes about eight weeks for them to process Form 8379 when it is filed by itself after your joint return has already been processed.

See related: Is wife liable for husband's student loans?

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Updated: 01-20-2018