Complicated tax situation - married filing jointly/separately, injured spouse, student loan debt, HELP!!!

[luna2005]

I have a complicated tax situation and I am about to go crazy trying to figure out how to file this year's taxes.

I married a longtime friend August 2018 in NY to get on his premium health insurance to cover a complex medical problem Medicaid refused to cover. He lives in AZ and owns a house in AZ (mortgaged), I live in NY and own a house in NY (no mortgage) so we maintain separate primary residences. We don't know the best way to file given all of our specifics and not disadvantage each other.

I am disabled with no income or expenses and receive NY state STAR program benefits for my property taxes. I am trying to file in a way to preserve those benefits so basically my husband's income doesn't count against it.

If we file "married filing separately" he'll lose his student loan deduction. I also don't know how this would work with deductions, as any medical miles/expenses I was planning to have him deduct as I have no income to deduct anything against. I'm also getting errors in Credit Karma about not being able to file separately online because AZ is a community property state and NY is not.

If we file "married filing jointly" I'll lose my STAR program benefits, and I'm worried my private student loan debt from 10 years ago will come out of his tax refund. I realize he can file an "injured spouse" form but I don't know if that's a guarantee of protection? I also don't know how to account for two primary residences in a joint tax return.

I am thinking filing "married filing jointly" would be best if 1) whatever he gets back is equal to or greater than my lost STAR credit and 2) I can keep my state residency as NY and he can keep his as AZ, and 3) there is some guarantee that filing "injured spouse" will prevent my student loans from going after his refund.

Someone please help me. I can't afford tax help or preparation and I just don't know how to do this the correct way! This man is so amazing to help me in a difficult situation and I need to figure this out, I don't want to cause him tax problems or an audit

 

[luna2005]

I just called the TOPS line and it says I have one debt that could be deducted from my tax refund (an unemployment over payment from 2009 that I can't afford to repay). Does this mean the private student loans can't go after my his tax return? Would the injured spouse protect him from the state unemployment liability? Thank you to anyone that helps me!

 

[Taxing Matters]

You are likely to be better off married filing separately. Your spouse lives in AZ, a community property state. His earnings therefore are community property, and if you file separately you would still have to include your share of the community income on your return. You and he would lose a lot of tax benefits by filing separately, too. However, in this kind of situation it is best to run the numbers both ways to see how you two would come out filing each way since a lot of different things can impact this and we don't have all the facts needed to figure out which would get you the best outcome.

It appears that for the basic STAR benefit the income requirement is that you must have no more than $500,000 of income. See the Star eligibility chart. If you are getting the enhanced benefit for seniors, your income must be $86,300 or less. And that only applies to the owners of the home and any spouses of the owner who are living in the home. So his income would not count towards figuring your STAR benefit. Just remember that starting the day you married half of most of his earnings are your income as a result of community property and your community property share of that income would be counted in determining your STAR benefit.

He certainly may file injured spouse if you file jointly. But again because part of the income on the return is your community property, it is likely that part of any refund on the return will be determined to be yours and the Education Department (ED) could offset that to pay your student loans. Of course, going forward the best way to deal with that problem is just ensure that there is very little refund for the ED to attach.

 

[Taxing Matters]

Does this mean the private student loans can't go after my his tax return?

Private student lenders cannot attach your refund. Only the U.S. Department of Education may attach a federal tax refund to collect unpaid student loans. Those would be loans either issued directly by the ED or that were guaranteed by the ED. If these were not federally issued or guaranteed loans then your refund won't be attached to collect them.

 

[luna2005]

Thank you for the info. Does it matter that we were careful to marry in NY which is not a community property state? We were concerned about "community property" so we chose to marry in NY where I live versus in AZ where he lives. Or does it just matter where spouse that earns money lives?

 

[Taxing Matters]

Thank you for the info. Does it matter that we were careful to marry in NY which is not a community property state? We were concerned about "community property" so we chose to marry in NY where I live versus in AZ where he lives. Or does it just matter where spouse that earns money lives?

Where you married does not determine whether community property law applies. The rules can get a bit confusing since it depends on the type of property and which state's law is going to apply to make the determination, but in general the situs for most income earned would be the state of residence of the person earning that income. So typically the situation of a married person living in Arizona and getting paid wages there would result in those wages being community property.You'd need to consult a family law attorney in Arizona to determine what all might be treated there as community property.

 

[not2cleverRed]

Thank you for the info. Does it matter that we were careful to marry in NY which is not a community property state? We were concerned about "community property" so we chose to marry in NY where I live versus in AZ where he lives. Or does it just matter where spouse that earns money lives?

It does not matter where you married. It matters where the parties live. It matters where the parties work.

And by the way, when you divorce, it will not necessarily be in NY.

 

[davew9128]

From IRM 25.18.5.11

1. Arizona. Premarital tax debts may be satisfied from 100% of community property traceable to or contributed by the liable spouse and 50% of all other community property (i.e., 100% of the withholding attributable to the liable spouse and 50% of the withholding attributable to the non-liable spouse would be available). See Rev. Rul. 2004-71, 2004-30 I.R.B. 74; Ariz. Rev. Stat. § 25-215(B); Prater v. U.S., 268 F. Supp. 754 (D. Ariz. 1967); Medaris v. United States, 884 F.2d 832 (5th Cir. 1989). If any portion of the overpayment is the separate property of the liable spouse, 100% of that portion may be retained to satisfy a premarital obligation. Whatever is leftover would be refunded to the non-liable spouse. Post-marital obligations that are not community obligations may be satisfied from 50% of community property. The Service takes the position that tax liabilities are community debts. Contact Counsel if the taxpayer challenges the treatment of a post-marital tax debt as a community obligation. Thus, the Service may retain 100% of the community property portion of the overpayment to satisfy tax debts in Arizona. See IRM 25.18.4.7, Collecting Post-Marital Liabilities; Hyde v. United States, 72 A.F.T.R.2d ¶ 93-5298 (D. Ariz. 1993). If any portion of the overpayment is the separate property of the liable spouse, 100% of that portion may be retained to satisfy a post-marital obligation. The non-liable spouse would be refunded the portion of the overpayment that is the non-liable spouse’s separate property.

 

[luna2005]

Thank you for the information. Would it be best then that he files the injured spouse form just in case? Or is that not applicable in Arizona?

 

[luna2005]

Sorry I'm looking at the injured spouse form, and line 9 "did (or will) you claim a refundable tax credit?" is a no, and that says if "no stop here do not file this form you are not an injured spouse." I don't understand this? Can the debt only go against refundable tax credits my spouse may receive? So they can't take any other part of the refund, correct?

 

[Taxing Matters]

Thank you for the information. Would it be best then that he files the injured spouse form just in case? Or is that not applicable in Arizona?

It wouldn't hurt. But first contact the Treasury's Bureau of the Fiscal Service at 1-800-304-3107 to find out if there has been refund offset requested for you. If there is no refund offset request in the system then your refund won't be attached.

Sorry I'm looking at the injured spouse form, and line 9 "did (or will) you claim a refundable tax credit?" is a no, and that says if "no stop here do not file this form you are not an injured spouse." I don't understand this? Can the debt only go against refundable tax credits my spouse may receive? So they can't take any other part of the refund, correct?

The refund offset can go after all of the refund that you have. The injured spouse form is trying to get you to determine if you will have any refund in the first place. If there is going to be a refund because of excess withholding from a job or because of excess estimated tax payments, then line 6 of the form addresses that situation. Note if that if you have refund of those excess payments the form tells you to skip lines 7-9 and go to Part II.