This has been such a helpful discussion! I'm dealing with a very similar situation where my employer included my $50/month cell phone reimbursement in my taxable wages. Reading through everyone's experiences has given me the confidence to approach our HR department. What I found particularly valuable was the suggestion to frame this as potentially helping other employees too, rather than just my individual issue. I work at a mid-sized company with lots of field technicians and sales staff who all get phone reimbursements, so this is likely affecting many people. I'm planning to gather all the documentation mentioned here - IRS Publication 15-B, Notice 2011-72, our employee handbook language about accessibility requirements, and maybe even create a brief log of my business phone usage like Adrian suggested. Having multiple sources of evidence should make this a pretty straightforward conversation. One question for those who successfully got this resolved - did your company end up changing their payroll procedures going forward to prevent this from happening again? I'm curious if this is the kind of mistake that tends to repeat year after year or if most employers fix their systems once they're made aware of the issue. Thanks again to everyone who shared their knowledge and experiences. It's amazing how much clearer this tax issue became with all your insights!

I'm a tax professional and wanted to add some clarity to this excellent discussion. The confusion around cell phone reimbursements often stems from changes in tax law over the years. Prior to 2010, cell phones were considered "listed property" and had complex substantiation requirements that made many employers treat all phone benefits as taxable to avoid compliance headaches. However, IRS Notice 2011-72 simplified this significantly by removing cell phones from the listed property category when provided primarily for noncompensatory business reasons. This means that if your employer has a legitimate business need for you to have a cell phone (like client contact requirements, emergency availability, etc.), both the business AND personal use can be tax-free. The key factors for your situation, Maggie, are: 1. You're in sales with client contact requirements 2. You submit actual bills showing usage 3. Your company reimburses a reasonable business percentage (60%) This clearly meets the accountable plan requirements others have mentioned. I'd strongly recommend approaching HR with the specific citation to Notice 2011-72 and Publication 15-B Section 4. Most payroll departments are grateful when these issues are brought to their attention with proper documentation, as it helps them avoid similar mistakes for other employees. One final note - if your employer is hesitant about making changes, remind them that incorrectly treating non-taxable benefits as taxable also costs them money in unnecessary employer-side payroll taxes (Social Security, Medicare, unemployment, etc.). Fixing this benefits everyone involved.

Another option to consider is filing separately from your spouse. If your spouse has significant income but few deductions, while you have business losses or lots of deductions, filing separately might help. But be careful! Filing separately has drawbacks like losing certain tax credits.

As someone who went through this exact same confusion when I first became self-employed, I can tell you it gets much clearer once you understand the flow. Here's the simple breakdown: 1. First, calculate your business profit on Schedule C: $135,000 revenue - $120,000 business expenses = $15,000 net business income 2. Then, on your main tax return (1040), you'll have that $15,000 as self-employment income plus any other income you and your wife have 3. Finally, you choose standard deduction ($27,700) vs itemized deductions. Since $15,000 - $27,700 = $0 taxable income, standard deduction wins unless you have huge personal deductions One important thing others mentioned: you'll still owe self-employment tax on that $15,000 (about $2,120), but your income tax would be $0. Don't overthink it - business expenses and personal deductions are completely separate things in the tax system. Your business expenses always get deducted first on Schedule C, then you decide standard vs itemized for personal stuff.

I tried the W4 adjustment thing last year and it sorta backfired. My company has a "blackout period" for W4 changes right before bonus payouts specifically because so many people were doing this. Check your company's payroll policies before assuming you can make last-minute changes!

This is such a timely discussion! I'm a tax preparer and see the aftermath of this strategy every filing season. While it's not illegal, there are some critical points to consider: First, the timing issue others mentioned is real - many companies now have blackout periods specifically because of this practice. You need to check your company's policy immediately. Second, bonuses are typically subject to the 22% flat supplemental withholding rate, but this might actually be LOWER than your regular withholding rate if you're in a higher tax bracket. In that case, adjusting your W4 could backfire. Third, the "safe harbor" rules are crucial. You need to pay either 90% of current year's tax or 100% of last year's tax (110% if your AGI was over $150k). If you're already meeting this through regular withholding, temporary W4 changes are less risky. My advice: Use the IRS withholding calculator first to see if you're already on track to meet safe harbor. If you are, and your company allows W4 changes, you could potentially adjust temporarily. But set multiple reminders to change it back - I've seen too many people get hit with huge tax bills because they forgot. The key is being strategic rather than "going crazy" with exemptions. Small adjustments based on your actual tax situation are much safer than dramatic changes.

Anyone know how this affects my 401k? I'm in a similar situation where I got laid off and have a 401k with the old employer. Will taking distributions from that generate imputed income W-2s too?

Based on your description of receiving severance in 2023 and having a $2,800 W-2, this is most likely related to those restricted stock units (RSUs) that Victoria mentioned. Many companies have "accelerated vesting" or "continued vesting" provisions in their equity agreements for layoffs, where your unvested stock continues to vest for a period after termination. The key thing to understand is that when RSUs vest, the IRS treats the fair market value of those shares as regular W-2 income, even though you didn't receive cash. Your former employer is required to report this and withhold taxes just like regular salary. Check if there's any federal or state tax withholding shown on this W-2 - if so, you'll get credit for those withholdings when you file your return. Since you strategically timed your severance for tax purposes, you'll want to factor this additional $2,800 of income into your 2023 tax planning. It's treated exactly like regular wages for tax purposes, so it will be subject to your marginal tax rate. The good news is this is likely a one-time occurrence unless you have more equity that continues vesting in 2024.

Has anyone considered the gift tax implications here? If you're paying your kids above-market interest rates, the excess interest could potentially be considered a gift from you to them. My accountant flagged this for me in a similar situation.

This is a great discussion! One thing I'd add is to make sure you're documenting everything properly from the start. I learned this the hard way when my daughter borrowed money from me (opposite situation, but same principle). Keep records of: - The original source of funds in those joint accounts (was it allowance money, gift money from grandparents, etc.?) - A written loan agreement with clear terms, even if informal - Payment records showing principal vs. interest breakdown - Bank statements showing the transfers The IRS really cares about substance over form here. If your kids truly owned that money originally and you're paying them legitimate interest, then yes, it's taxable income to them. But if you were just moving your own money around between accounts, that's different. The key is being able to prove the economic reality of who owned what. Also worth noting - if your kids are minors and this pushes their income over the filing thresholds mentioned earlier, you might want to consider whether the tax complications are worth it compared to just keeping it as a family arrangement without formal interest payments.