How IRS Allocates Tax Return Overpayments

allocation chart

Allocating Overpayment of Joint & Separate Returns

If a married couple file a joint return, each spouse is responsible for their separate interest in the reported income on the joint tax return. In some situations, a spouse may pay the entire balance owed on the joint tax return. If this was to occur, the IRS would not be able to credit the overpayment to a separate tax liability owed by the other spouse for a previous tax year.

If however, a married couple were to file separate tax returns, the overpayment of one spouse would not be credited to the other spouse’s tax return. This means that the second spouse would still owe the same amount of tax even though the first spouse paid more than they owed.

Payroll Tax Exception

There is one exception to the rule that deems if a joint return is filed and income is produced by only one spouse, the overpayment may be applied to the spouse’s payroll tax liability. This is a very specific ruling that has many variables that need to be met. You must have filed a joint return, only one spouse generated income, an overpayment of tax was made and you have an outstanding payroll tax liability. If you do not meet all of these criteria, your overpayment will not be applied to the payroll tax liability in question.

IRS Sec. 6402(a)

The IRS is given the option to use an overpayment and apply it to any other tax liability that the taxpayer may have. If a joint return was filed and both taxpayers create an overpayment, the IRS will need to calculate the proportionate share of overpayment for each taxpayer and then use that amount to apply it to separate tax liabilities for each taxpayer.

Only the amount of overpayment that is sent in by each spouse may be used against that specific spouses other tax liabilities. There cannot be mixing and matching of overpayment funds to offset another spouses tax liability.

To learn more about IRS Sec. 6402(a) check out:

26 USC § 6402 – Authority to make credits or refunds

About Paul Gaulkin CPA

Paul Gaulkin is a Certified Public Accountant and enrolled with the U.S. Treasury to practice before the IRS. Mr. Gaulkin possesses unique technical knowledge in the process of securing relief for taxpayers nationwide with IRS and State tax problems. With an accounting degree from Florida International University, he is able to transform complex tax and accounting problems into easy to understand solutions.

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