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My wife and I have been separated for nearly 2 years, but are still legally married and filed our tax return jointly.

All my income was on a W2, and totaled $140k. I had taxes withheld as normal, so I was entitled to a refund.

All my wife's income was on a 1099, and totaled $20k. She did not pay any taxes. She did however write off enough expenses to offset her income, as she purchased some expensive camera equipment for her business last year.

The state and federal refunds combined were $5700.

The question is: How much of this is my wife legally entitled to?

She feels she deserves a portion of the refund because she had expenses which may have increased the refund amount, and I do not feel she's entitled to any of it because she paid no taxes.

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    Unless what you mean to ask is how much is legally hers, the question of "what is fair" is purely opinion based.
    – GendoIkari
    May 27 '20 at 18:36
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    I voted to close as "primarily opinion-based." This is really unanswerable; what is "fair" between you two is really dependent on many things not in the question, such as shared expenses, kids, etc. You two really need to work it out, and if you can't do it yourselves, get a marriage counselor involved. May 27 '20 at 18:40
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    Edited to specify legally entitled. I am looking for an informed financial opinion, not personal counseling.
    – pyro_lemur
    May 27 '20 at 18:45
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    @pyro_lemur How much she is legally entitled to depends not only on the state you live in, but also the details of your financial situation. See a lawyer if you and your wife are having a financial dispute such that you need a legal opinion. May 27 '20 at 18:48
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    This question may be fine on law.stackexchange if you provide information such as what state you are in.
    – GendoIkari
    May 27 '20 at 18:52
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I am not a tax expert nor a law expert. However, if you file as "married, filing jointly" then you share tax liability. From IRS Pub 504:

Both you and your spouse may be held responsible, jointly and individually, for the tax and any interest or penalty due on your joint return. This means that one spouse may be held liable for all the tax due even if all the income was earned by the other spouse.

Logically, I take this to mean you are also "jointly and individually" entitled to any refund that may result from over payment of taxes. For couples that are married and have lives together, this doesn't matter. If you file jointly you each pay into one "pot" of money, pay taxes from the one "pot" and get refunds back into the same "pot".

If you live in a community property state, she is entitled to 50% of the refund amount.

At the end of the day, consult a tax expert or the IRS to confirm.

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    But consider that the refund is just a repayment of excess withholding, so if the OP doesn't want to share the refund, then they should decrease the amount that's withheld from their paycheck.
    – D Stanley
    May 27 '20 at 19:33
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    "Logically, I take this to mean you are also "jointly and individually" entitled to any refund that may result from over payment of taxes." Why? If he had zero withheld would she logically be obligated to pay half of what was owed? Also "she is entitled to exactly 50% of the refund amount" depends on state, the linked answer is regarding a community property state. If they live separately but are legally married, then the IRS certainly considers them married and they must file as such.
    – Hart CO
    May 27 '20 at 20:07
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    @HartCO I was quoting the IRS link, which clearly states that each member of the couple is responsible for the couple's collective taxes. If the OP had zero withholding, then yes I would expect the IRS to contact the wife individually if they couldn't get it from the husband. She could of course claim protection under the innocent spouse clause though. You are correct about the second link, I will edit.
    – Nosjack
    May 27 '20 at 21:05
  • The jointly and individually notion is pretty much always used in the context of financial obligation, so it's a bit odd to think of in the context of repayment. Good edits though.
    – Hart CO
    May 27 '20 at 21:25
  • @DStanley that's an amazing point you made there!
    – pyro_lemur
    May 29 '20 at 16:48
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The obvious option to look at is to file married filing separately (MFS) instead of Married filing Jointly (MFJ). The obvious benefit is that many of the financial issues are disconnected on your tax forms. There still does need to be some communication to make sure that shared items such as the house and children are handled appropriately.

In some cases MFS may increase the overall taxes paid by the two people because some deductions and credits are eliminated or modified by the choice of MFS. One advantage is that the tax decisions of one spouse don't directly impact the tax situation of the other spouse.

Of course making this decision now could be viewed as unfair by the other spouse if it is sprung on them long after they have the ability to make withholding adjustments or make quarterly payments.

There can also me state tax implications of this choice, so that should also be looked at before the decision is made.

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  • (1) with MFS one decision does impact: both spouses must itemize or neither. Although post-TCJA many fewer taxpayers benefit from itemizing. (2) timing of withholding doesn't matter, as long as you get it in by Dec. 31; in a normal year May is plenty of time, although this year some people will probably have reduced or even no income for the rest of the year. For estimated payments timing does matter, but this year they postponed the Apr. 15 payment to July 15, and even if they don't also delay June 15 you can still make it if you have the cash. May 29 '20 at 3:08
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I think there is a pretty simple argument in your favor. You could have adjusted your withholding amount so that you owed some money instead of getting a refund. Had you done that, would she be offering to split the amount you owe with her? (Obviously, no.) In fact if you think this is going to come up again next year I would consider reducing your withholding now so that you can avoid this same conversation next year.

That being said, how is she living with $0 income after expenses? If you are still supporting her, and if the amount you provide her each month is based on your income, then the reality is that you actually make almost $500 more per month than your current take home amount. For example, if you do adjust your withholding so that you owed taxes next year, your take home would suddenly increase by at least $500/month (even more right now since it's mid-year). Knowing that might change the support amount you offer her, if applicable.

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