When couples file joint tax returns, they often expect to share both the benefits and the burdens of taxation equally. However, situations can arise where one spouse’s debts or obligations lead to the entire tax refund being withheld to cover them. But fear not; the IRS offers injured spouse relief. Here’s a breakdown of injured spouse relief, including what it is, who is eligible, and how it works.
Are You a High-Income Non-Filer? Beware of IRS Collections in 2024
The IRS has resumed collections. If you recently received an IRS notice or owe back taxes, you could be at risk of a lien, levy, garnishment, or other means of tax collection. Optima CEO David King and Lead Tax Attorney Philip Hwang provide helpful insight on what your IRS notice means, what you need to do to avoid penalties and interest and how to get compliant with the IRS.
Live Here, Work There. Where Do I Pay State Income Taxes?
After weeks or months of job seeking, you land your dream job — but it’s in a different state. The location of the job is close enough so that you can commute every day rather than move. However, you are still faced with the dilemma of where and how to pay state income taxes. Here’s what you should know about taxes if you live in one state but work in another.
In a move signaling a significant shift in fiscal policy, 14 states across the United States implemented cuts to individual income taxes in 2024. This development comes as states reassess their tax structures amid changing economic landscapes and evolving political priorities. Here’s a breakdown of the 14 states that cut their income tax rates in 2024.
When couples file joint tax returns, they often expect to share both the benefits and the burdens of taxation equally. However, situations can arise where one spouse’s debts or obligations lead to the entire tax refund being withheld to cover them. We’ve covered innocent spouse relief before. However, there is another type of tax relief offered to spouses: injured spouse relief. This provision can be a lifeline for those facing financial strain due to their partner’s financial liabilities. Here’s a breakdown of injured spouse relief, including what it is, who is eligible, and how it works.
What is Injured Spouse Relief?
Injured spouse relief is a provision established by the IRS to address situations where a jointly filed tax refund is subject to offset to satisfy the debts of one spouse. This relief aims to protect the portion of the refund belonging to the innocent spouse. It helps ensure equitable treatment within joint tax filings when you are not responsible for your spouse’s back taxes. Examples of these types of cases include past-due child support, federal debt, or state income tax debt.
Eligibility Criteria
To qualify for Injured Spouse Relief, specific conditions must be met:
Joint Filing Status: The couple must have filed a joint tax return.
Refund Overpayment: The refund should result from overpaid taxes or eligibility for refundable tax credits.
Separation of Obligations: The debt leading to the refund offset must be solely the responsibility of one spouse.
Innocent Spouse Status: The requesting spouse should not be legally liable for the debt in question.
Substantiation of Claim: The innocent spouse must demonstrate their rightful share of the joint refund through accurate documentation.
How to Request Injured Spouse Relief
To seek injured spouse relief, the innocent spouse must file Form 8379, Injured Spouse Allocation. This form allows the innocent spouse to allocate their share of the joint refund and shield it from offset to satisfy the other spouse’s debt. It’s crucial to provide accurate information and documentation to support the claim. This can include details of income, withholdings, and credits for each spouse.
Navigating Community Property States
In community property states, such as California, Texas, and Arizona, spousal income and assets acquired during the marriage are typically considered jointly owned. This communal property framework can complicate the allocation of refunds in cases of injured spouse relief. While federal tax law governs the allocation of refunds for federal tax purposes, community property laws may influence the determination of each spouse’s share in community property states. It’s essential for couples residing in community property states to understand the interaction between federal and state laws when seeking injured spouse relief.
Common Mistakes to Avoid
When applying for injured spouse relief, it’s essential to avoid common mistakes that could delay or jeopardize the claim:
Incomplete Information: Failing to provide accurate and complete information on Form 8379 can lead to processing delays or denial of relief.
Missing Deadlines: It’s crucial to file Form 8379 within the statute of limitations, typically three years from the due date of the original return or two years from the date of payment.
Ignoring State Obligations: While injured spouse relief applies to federal tax debts, couples should also address any state tax liabilities separately.
Tax Help for Injured Spouses
Injured Spouse Relief serves as a vital safeguard for innocent spouses facing financial hardship due to their partner’s obligations. By understanding the eligibility criteria, filing requirements, and potential impact of this relief, couples can protect their financial interests and maintain stability in their relationship. If you believe you qualify for injured spouse relief, consult with a tax professional. You can also seek guidance from the IRS to navigate the process effectively. Optima Tax Relief is the nation’s leading tax resolution firm with over a decade of experience helping taxpayers with tough tax situations.
When couples file joint tax returns, they often expect to share both the benefits and the burdens of taxation equally. However, situations can arise where one spouse’s debts or obligations lead to the entire tax refund being withheld to cover them. We’ve covered innocent spouse relief before. However, there is another type of tax relief offered to spouses: injured spouse relief. This provision can be a lifeline for those facing financial strain due to their partner’s financial liabilities. Here’s a breakdown of injured spouse relief, including what it is, who is eligible, and how it works.
The IRS has resumed collections. If you recently received an IRS notice or owe back taxes, you could be at risk of a lien, levy, garnishment, or other means of tax collection. Optima CEO David King and Lead Tax Attorney Philip Hwang provide helpful insight on what your IRS notice means, what you need to do to avoid penalties and interest and how to get compliant with the IRS.
Live Here, Work There. Where Do I Pay State Income Taxes?
After weeks or months of job seeking, you land your dream job — but it’s in a different state. The location of the job is close enough so that you can commute every day rather than move. However, you are still faced with the dilemma of where and how to pay state income taxes. Here’s what you should know if you live in one state but work in another.
In a move signaling a significant shift in fiscal policy, 14 states across the United States implemented cuts to individual income taxes in 2024. This development comes as states reassess their tax structures amid changing economic landscapes and evolving political priorities. Here’s a breakdown of the 14 states that cut their income tax rates in 2024.
The tax filing deadline is just around the corner. If you need more time to prepare your tax return, you can file a tax extension. While a tax extension won’t give you more time to pay your taxes, it will allow a few more months to file your tax return without receiving a failure-to-file penalty. Here’s an overview of how tax extensions work and how to file one.
What is a Tax Extension?
The IRS allows taxpayers to file for a tax extension, which gives them more time to prepare their tax returns. If approved for a tax extension, the new tax deadline would be October 15, 2024. You can file for a tax extension for any reason, and the IRS will approve it as long as you submit Form 4868 by the April 15th tax deadline. While some states accept federal tax extension forms, others have their own requirements for obtaining an extension. Some states like California, Wisconsin, and Alabama offer automatic extensions, which means you don’t have to file a form. Other states require you to request an extension. You can check with your own state tax authority for more information on this.
Does a Tax Extension Delay My Tax Payments?
While a tax extension won’t delay the deadline to pay taxes, it will allow a few more months to file your tax return without receiving a failure-to-file penalty. That said, you might be wondering how much tax to pay if you aren’t sure how much you will owe, if any at all. In this case, you’ll need to estimate the amount of tax you will owe and pay that amount by April 15. If you do not, the IRS will begin to charge you interest on the balance owed, plus penalties. The failure-to-pay penalty is 0.5% of the tax owed after April 15, for every month or part of a month the tax remains unpaid, up to 25%.
Calculating Estimated Tax
To calculate your estimated tax payment, you’ll need to first calculate your taxable income and then subtract tax deductions, or the standard deduction. The amount leftover should be an estimate of your taxable income for the year. Then you can apply your tax rate determined by your tax bracket, which is based on your taxable income and filing status. This should help you find the amount of tax owed for the year.
Tax withholding should cover most, if not all, of this amount. If it does not, you can offset this amount by claiming tax credits you are eligible for. The tax remaining should be paid at the April tax deadline. If you overpay, you will receive a tax refund when you file before the October extension deadline. If you underpay, you could owe the balance, plus an underpayment penalty.
Tax Underpayment Penalty
The IRS underpayment penalty is a fee assessed on taxpayers who do not pay enough taxes during the tax year. While interest rates can change, the current rate for is 8% for individuals and 10% for corporations. There are a couple ways to avoid the underpayment penalty. The first is to owe less than $1,000 when you file your return. Alternatively, you could pay either 90% of the current year’s tax or 100% of last year’s tax, whichever is less. However, if your AGI exceeds $150,000, you should pay the lesser of 90% of the current year’s tax or 110% of last year’s tax. Doing so should help you avoid the underpayment penalty.
The IRS also offers underpayment waivers for some scenarios including:
Taxpayers who were U.S. citizens or residents for the prior tax year and did not owe any taxes for that year
Taxpayers who missed a required payment because of a casualty event, disaster, or other unusual circumstance
The tax underpayment was a result of reasonable cause and not willful neglect
Taxpayers who retired after reaching age 62 during the current or preceding tax year
Taxpayers who became disabled during the tax year for which estimated payments were owed or during the preceding tax year
Should I File a Tax Extension?
If you are certain that you cannot file your tax return by the April 15 deadline this year, then you should at the very least file a tax extension before the tax deadline. This can immediately save you the trouble of dealing with a failure-to-file penalty. The current failure-to-file penalty can be up to 25% of the tax due. This penalty will not be charged if you file an extension, but it will be if you do not file a return by the extension deadline of October 15. Additionally, you should make sure you pay estimated taxes by the April 15 deadline to avoid the failure-to-pay penalty and the underpayment penalty.
Filing a tax extension can be very helpful if you are still awaiting important tax documents, need some documents corrected, or just simply do not have time to file before the deadline. If you are wondering if you should file an extension because you owe taxes and you are unable to pay, filing an extension may not be a good idea. Instead, you might consider getting a payment plan or installment agreement set up with the IRS. We know dealing with the IRS on your own can be intimidating. Optima Tax Relief has over a decade of experience helping taxpayers get back on track with their tax debt.
Tax season is a time of anticipation for many individuals, with the hope of receiving a tax refund. However, the unfortunate reality is that tax refunds, like any valuable document, can be vulnerable to theft. If you find yourself in the distressing situation of having your tax refund stolen, it’s crucial to take swift action to minimize potential losses and protect your finances.
How Can Thieves Steal Your Tax Refund?
Thieves can employ various tactics to steal your tax refund, ranging from sophisticated identity theft schemes to opportunistic acts of theft. Here are some common methods that thieves may use:
Identity Theft
Identity theft occurs when someone obtains your personal information. This can include your Social Security number, date of birth, without your consent. Armed with this information, thieves can fraudulently file a tax return in your name and claim a refund. They may also use stolen identities to intercept tax refund checks or direct deposits.
Phishing Scams
Phishing scams involve fraudulent emails, phone calls, or text messages that appear to be from legitimate organizations, such as the IRS or tax preparation services. These messages often prompt recipients to provide sensitive information.
Mail Theft
Tax refund checks and other sensitive documents sent through the mail are vulnerable to theft if they are intercepted by criminals. Thieves may target residential mailboxes, community mailrooms, or postal drop-off locations to steal mail containing tax refunds or other valuable documents.
Data Breaches
Data breaches occur when cybercriminals gain unauthorized access to databases containing personal information, such as those maintained by government agencies, financial institutions, or businesses. In some cases, thieves may exploit data breaches to obtain individuals’ tax-related information. They may then use it to file fraudulent tax returns or intercept tax refunds.
If Your Tax Refund is Stolen, Act Immediately
Discovering that your tax refund has been stolen can be alarming, but it’s important to remain calm and act promptly. However, note that you must wait a reasonable amount of time before contacting the IRS about your stolen refund. If you opted for direct deposit, you’ll need to wait until 5 days after the usual 21-day period. If you opted for a paper check, you will need to wait six weeks before contacting the IRS. After these waiting periods, here’s what you should do.
Report the Fraud
Your first step should be to report the fraud to the Federal Trade Commision via IdentityTheft.gov. In addition, you may need to file IRS Form 14039, Identity Theft Affidavit. This notifies the IRS that your identity was stolen to file a phony tax return.
Notify the IRS
You can ask the IRS to trace your refund by calling their Refund Hotline at 1-800-829-1954. This hotline is specifically for those who file as single, married filing separately, or head of household. If you file jointly with your spouse, you will need to complete Form 3911, Taxpayer Statement Regarding Refund via mail.
If you chose direct deposit, your bank will receive a letter within six weeks from the Bureau of Fiscal Service to verify where the refund was sent. Paper check refunds work differently. If the check has not been cashed yet, you’ll simply receive a replacement within six weeks. However, if the original check was fraudulently cashed, the Bureau of Fiscal Service will send you a claim package within six weeks. It will then be up to them to determine if the check was forged and notify the IRS if a replacement check should be sent to you. If they deny your claim, you may appeal.
Protect Your Identity
Tax fraud and scams only get more sophisticated each year, so safeguarding your identity is more important than ever. One of the ways you can do this is to get an Identity Protection PIN (IP PIN). This six-digit number prevents thieves from filing a tax return with your Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). IP PINS must be renewed every year for added security. If your identity is stolen, you should also update your passwords as the thief could’ve obtained this information. Be sure to use strong passwords and avoid using the same password for all accounts. Finally, always be on the lookout for scams aiming to steal your identity. Never interact with suspicious calls, emails, texts, or other forms of communication.
Tax Help for the 2024 Filing Season
Discovering that your tax refund has been stolen can be a distressing experience, but prompt action and vigilance can help mitigate the potential impact. By reporting the theft and securing a replacement check, you can safeguard your finances and minimize the risk of identity theft. Additionally, taking proactive measures such as opting for direct deposit and securing your mailbox can help prevent future incidents of theft. Remember, staying informed and proactive is key to protecting yourself against financial fraud and identity theft. Optima Tax Relief has a team of dedicated and experienced tax professionals with proven track records of success.
