Learn About Your Money

Most Americans hate (26%) or dislike (30%) doing their income taxes. One way to change that is to improve your understanding of your tax situation.

Not Claiming Injured Spouse Relief

For taxpayers who are married, they have two filing statuses to choose from- MFJ or MFS. In the majority of cases, filing MFJ is more advantageous as a status. When a couple files MFS, they lose all these valuable benefits:

Once you file a tax return using the MFS status, you do have an option to file an amendment and change the filing status to MFJ. However, you can’t file a return as MFJ and then amend to MFS, with some exceptions.

If you file MFJ and have a refund, certain creditors can legally intercept it to pay your or your spouse’s debts. Most creditors can’t seize tax refunds, but government agencies can, such as:

• Federally backed student loans;
• Delinquent alimony obligations;
• Past-due child support;
• Federal and state tax debts due on separately filed returns;
• Unemployment compensation debts.

In the case when one spouse owes all or majority of the debt, the other spouse can file Form 8379, Injured Spouse Relief, and request their share of the refund. This is an excellent alternative to filing MFS. The taxpayers can reap the benefits of the MFJ filing status and not have their entire refund offset one of the spouse’s debts, which frequently is why couples want to file MFS in the first place.

The way to file form 8379 is to either:

• File it with an MFJ return;
• Include it with an amendment on Form 1040-X; or
• File it by itself after filing the tax return. 

The injured spouse relief can only address refunds, not tax liabilities. In order for a taxpayer to use it, the taxpayer must have contributed to income and paid some taxes on the return in withholdings or estimated payments.

Summary Table 19. Incorrect Filing Status & Dependency Mistakes

How to Avoid These Mistakes?

It is crucial to select the correct filing status for yourself as filing requirements, deductions, credits, and tax liability will be affected. The best way to avoid choosing the wrong filing status is to answer all the tax preparer or tax software questions honestly.

If you are claiming a dependent, make sure you have supporting documents that can confirm expenses paid for education, medical services, living costs. If a situation arises when the IRS requests information to claim the dependency, you will have everything ready.

File your tax return early to make sure someone else doesn’t claim your dependent first. Once one taxpayer uses a SSN on a tax return, the IRS e-filing system will reject any other filings that try to claim the same SSN. If that happens, the only way to dispute the claim is to file via paper and provide supporting information.

Recognize that the definitions that the IRS uses for tax purposes are not the same that taxpayers use in daily life. For example, according to the IRS definition, your child may not be your dependent because you didn’t provide more than half of his/her support, and he/she didn’t live with you for at least half the year, but he/she is still your child.

If you have young adult children working who are in college, communicate with them to make sure it is clear how they should file their taxes. Communication is the key here.

If you have a signed divorce or separation agreement that includes Form 8332, a release of claim to the dependent by the custodial parent, make sure you include a copy of it with your return; otherwise, certain credits could be disallowed.

If you or your spouse have legally enforceable past-due debts that will offset part of your refund, instead of filing MFS and losing valuable credits and deductions, consider including Form 8379 for Injured Spouse Relief with your tax return. Form 8379 provides a way to receive all the benefits of filing MFJ and not loose part of the refund allocated to the spouse without the debt obligations.