Top #5 things to know about Tax Liability amongst spouses

by Mounica Kota | Aug 24, 2020 | Back taxes, IRS, Spouse Relief, Tax Liability, tax secrets

Top #5 things to know about Tax Liability amongst spouses

Marriage is the time when you vow to stand by the side of your spouse through thick and thin throughout the rest of your life. You might be having the idea that you know everything about your partner; however, there might be a secret that you might not be aware of i.e. the tax debt. You would want to know if the IRS can come after you or charge you for your spouse’s taxes. Yes, you can be liable for the tax debts of your spouse but only in certain circumstances.tax liability amongst spouses.

1.Can I be held liable for my spouse’s tax debts?

The main reason as to why the IRS would come after you for your spouse’s tax debts depends on factors such as when you filed your tax returns and your tax return filing status. In case, your spouse had claimed false deductions or failed to pay off the debts to IRS you might be held responsible for this.

Filing status and liability determines whether you would be liable for your spouse’s tax debts or not.There are two options available for married couples i.e. filing jointly or filing tax returns separately. These options will be available to you if you are filing your tax returns being married to a foreign citizen or a resident.

a.Married filing jointly

Your tax filing status is important as it will determine your taxable income. When filing your tax returns jointly, you can claim tax allowances but both of your tax obligations become the same. By this, you would be responsible for your spouse’s tax debts and vice versa. Your tax refunds can be used by the IRS to offset the tax dues of your spouse. However, if you do not want your refunds to be used for paying your partner’s tax debts you can apply for Innocent spouse relief or injured spouse relief.

b.Married filing separately

According to the latest IRS data, out of the 153 million tax returns which were filed during the year 2017 only 3.2 million couples were married and filing their returns separately. The main cause for filing tax returns separately is to avoid being liable for their partner’s tax bill or any other tax penalties.

2.When your spouse’s tax debts were incurred?

In case your spouse owes money to the IRS, the timing of the debt incurred is important.

1.Before Marriage

If the debt of your spouse had been incurred before you got married, then you do not have any tax liability and only your spouse would be liable. In case, your refund had been intercepted by the IRS to pay off your spouse’s debts then you must apply for Injured Spouse Status.

b.During Marriage

If the tax debts of your spouse were incurred during the time of your marriage and you have filed jointly then you might be potentially liable. However, tax debts have been incurred by your spouse without your knowledge then you are not responsible.

c.After Marriage

If the tax debts have been incurred by your spouse after marriage then you might be held liable if you have been legally separated from your spouse but not divorced. In such a case, you can apply for Separation of liability relief for partial liability.

3.Can your house or assets be seized by the IRS?

Yes, the IRS has the power to seize your house or assets even though the money owed to the IRS is by your spouse. This is feasible for that year during which you have filed your tax returns jointly. However, it is very unlikely for the IRS to seize your physical property and it would rather issue a tax lien or levy.

4.Can you dispute the liability of your spouse’s back taxes?

The IRS would offer two options to provide relief to those spouses who have been taxed on behalf of their spouses.

a.Innocent Spouse Relief

Innocent spouse relief can be offered to you if your spouse failed to report his income or claimed improper credits/deductions. You are considered to be an innocent spouse if you are married to someone who had lied to the Federal Government, hidden income, or claimed too many deductions to lower his tax debts. You can fill Form 8857 and request a separate tax liability which would help you in providing relief from tax penalties or liabilities of your spouse.

b.Injured Spouse Relief

If your share of the tax refund on the joint tax return was used by the IRS to offset the debts of your spouse, you can consider yourself as an Injured Spouse. The IRS would intimate you if any part of your tax refund is being used to offset your spouse’s back taxes. You can fill Form 8379, mention “Injured Spouse” on the top of Form 1040, and obtain your refund from the IRS.

5.Open communication on finances

So, your tax return filing status and the status of your marriage will help in determining if you would be held liable for your spouse’s back taxes or not. It is necessary to maintain clear communication with your partner and understand the financial positions of each other well. Taxes are a part of your lives and you must discuss them openly.

Conclusion

Hence, this information on the tax liability of spouses would be helpful in case you are wondering about the difficulties you might face due to the tax secrets of your spouse.

Reference

https://www.communitytax.com/spouse-tax-debt-liability/

The changes in the NRI norms in India 2020, resulting in higher tax liability

by Mounica Kota | Jul 22, 2020 | coronavirus, NRI Norms, Tax Liabilities, Taxation

The changes in the NRI norms in India 2020, resulting in higher tax liability

The novel coronavirus has been spreading across the world very rapidly making millions and millions of people sick. To put a brake on the speedily spreading coronavirus, domestic and international flights had been stopped on an interim basis by the Indian Government. As a result, many NRIs who had visited India had to extend their stay in India till the restrictions on flights are lifted.This extension in the stay of the NRIs and the foreigners in India due to the pandemic COVID-19 might lead to an increase in their tax liabilities. Non-resident Indians may be stuck in the country due to the restrictions imposed on travel, illnesses, or restrictions being imposed by the other countries. This extended stay can cause higher tax incidence if the stay exceeds the prescribed thresholds unless specific exemptions are provided by the Government to reduce the extra tax liabilities. In simple terms, the extended-stay by an NRI in India can bring him into the Indian income tax fold.

The taxation regime

According to the Income Tax Law, a person can be classified as a resident or a non-resident of India based upon his duration of stay in the country during a financial year.

An NRI who is visiting India becomes a resident of India if he stays in India for 182 days or more in a financial year along with a stay of 365 days or more in four preceding years. This criterion applies to an NRI who is either a citizen of India or a person of Indian origin.
However, according to the latest Finance Act, 2020 there have been certain amendments made to the tax residence criteria. From the Financial year 2020-21, the threshold for the period of stay for an NRI staying in India has been reduced to 120 days from 182 days.
So, an NRI can become a tax resident with a minimum of 120 days stay only if the NRI is earning above Rs. 15 lakhs in a particular financial year. In this case, the NRI would be taxed on his global income
However, the threshold of 120 days does not apply for those NRIs who have an Indian income of less than Rs. 15 lakhs and would become a resident only on a stay of 182 days in India.
The Indian Income Tax Law does not differentiate between the voluntary or involuntary stay of an NRI in India for the determination of his residence for taxation. NRIs staying in India beyond their prescribed thresholds would attract tax liability even if they wanted to leave India.

Extension of lockdown and implications of being a tax resident

Due to the ongoing lockdown and non-resumption of International flights, an NRI would be taxable on his Indian income. NRIs would also face problems related to dual tax residency or citizenship. However, an NRI who became a tax resident of India is not liable to file his tax returns in India immediately. The process of taxation would need an evaluation on a case-to-case basis.

An NRI who has a taxable income in India above the basic limit of exemption i.e. Rs. 2.5 lakhs should file an income tax return in India. NRIs becoming tax residents of India might also face other problems such as taxability of the interest on their NRE accounts. Moreover, there might be changes in the TDS rates on their Indian income.

However, the Government of India might give some clarification on the matter related to the tax residency of the NRIs who have been bound to stay longer in India due to the current COVID-19 situations. The OECD (Organization for Economic Co-operation and Development) has recommended for some exemptions in the threshold limits related to the tax residency of NRIs. However, there has been notification on this but the Government might issue relaxation on this.

If there are no relaxations from the Indian Government, then the NRIs will have to file income tax returns in India. But, the NRIs need not pay any tax in case of the absence of an income in India. Also, they do not need to pay any tax on their foreign income in India.

Conclusion

Hence, it is important for the NRIs who have been held up in India due to the lockdown to consult about the impact of the new regulations related to tax residency rules in India. They must understand the rules and fulfill the compliances if applicable in their case.

Tax Liability for NRI’s residing in the US for sending money to India

by Mounica Kota | Dec 25, 2018 | Tax Planning, Tax Preparation

Tax Liability for NRI’s residing in the US for sending money to India

Tax Liability for NRI’s residing in the US for sending money to india.A better working opportunity or an opportunity to secure a better future for yourself and your family or better earnings are some of the most common reasons for people to seek jobs abroad. It is only but natural that one would want to send money back to the country. Either to their existing savings account or to your family. One must be cognizant of the fact that two different countries and their respective tax laws come into the picture in such transactions. If you are an NRI who resides in the United States of America, what are the tax liabilities that you must adhere to? If you are sending money back to India, it largely depends on whom you want to transfer the money to. For starters, when an NRI sends money to their spouse, kids or parents, they might not have to pay any taxes. The reason being, it is considered as a gift from your income to them. And in India, a gift from earning heads is not considered to be liable for taxes. On the other hand, if you are sending the money to the savings account of someone else, it would be a source of income for them and they must pay applicable taxes on the same. Another important thing to keep in mind is the conversion of bank accounts. As soon as you become an NRI, the first thing that you must do is convert your savings account to NRO. Thus, a scenario where you would send money to your own savings account doesn’t arise in the first place.

Abroad to NRO

There are different ways by which you can submit money to your NRO account. You can either wire transfer the same, do online transfers or take the help of any other banking channel. The amount that you transfer is non-taxable either in India or in the USA. The simple assumption is that you have already paid taxes for the income that you receive in the USA. But if you earn interests from your NRO account, you are liable to pay taxes on the same. Of course, this taxation adheres to income tax laws of India. Thus, if the interest that you earn exceeds the basic exemption income of INR 2,50,000 for a fiscal year, you will have to pay taxes on the same. Remember, it is not mandatory to file your taxes if your only source of income is interests earned on a saving account. However, you can reclaim the money as a part of TDS that is already deducted.

Abroad to NRE

The other account that you can possibly convert your savings account to is an NRE account. And the taxes change by a considerable margin should you decide to transfer funds to your NRE account. Any amount that you transfer to your NRE account is non-taxable. Also, the interests that you earn on your NRE savings account is non taxable as per Indian tax laws. But for NRIs based out of USA, they would need to include the income from NRE accounts in their income tax filing, since it becomes a global income. However, if you choose to transfer the same to your spouse’s account, the effective taxation would come down by a considerable amount due to the lower tax bracket. For any money transfers to the savings account of your parents, they need not pay any taxes on the same. As already mentioned, the type of account that you transfer money to largely defines the amount of taxes that you are liable to pay.