I'm going through this exact scenario in Guam! My CPA here says not to worry - if the IRS ever questions why you haven't filed US returns, they'd send a notice first asking for an explanation before jumping to audit. At that point, you'd just respond with copies of your territorial tax returns and proof of bona fide residency. The $75k threshold is there because the IRS doesn't want to process thousands of forms from people they're not too concerned about. The only people I know who've had issues are those who claimed to be bona fide residents but weren't actually living in the territory full-time or were trying to claim benefits from both systems.

This is really helpful information from everyone! I'm in a similar situation in American Samoa and have been wondering about the same things. One thing I'd add based on my research - even though we're under the $75k threshold, it's worth understanding the "closer connection" test that the IRS uses to determine bona fide residency. They look at factors like where your permanent home is, where your family lives, your business/employment location, driver's license, voter registration, etc. I keep a folder with all this documentation updated annually - copies of my territorial tax returns, lease agreements, utility bills, bank statements showing local address, employment contracts, and even photos of my residence. It might seem like overkill, but if questions ever arise, having a comprehensive record of your life in the territory makes proving bona fide residency much easier. The key insight from Owen Jenkins about the statute of limitations not starting until they have notice is concerning though. Makes me think about whether I should proactively send that letter he mentioned, even years after establishing residency here.

One thing to be aware of - when your son turns 18, the survivor benefits might automatically switch from your account to his own direct account. That's what happened with my daughter. When this happens, he will be responsible for any potential tax liability from that point forward. The good news is that most 18-year-olds don't have enough additional income to make their survivor benefits taxable, especially if they're full-time students (benefits can continue until 19 if still in high school).

Just wanted to add something that might help ease your mind about the audit concerns you mentioned. The IRS has specific safe harbors for children receiving survivor benefits, and they're generally very understanding about these situations since they recognize families are dealing with loss. If your son's only income is survivor benefits and they're under the taxable thresholds, you're actually at very low risk for audit issues. The IRS focuses their limited audit resources on higher-income situations and complex transactions, not children receiving government benefits. That said, I'd definitely recommend keeping good records - save all the Social Security benefit statements (Form SSA-1099) each year, even if you don't need to file. If questions ever come up later, having that documentation will make everything much easier. You can also set up a my Social Security account online to track his benefits electronically. The fact that you're asking these questions now shows you're being responsible about this. Most families in similar situations don't have tax filing requirements, but staying informed like you're doing is the right approach.

Has anyone tried the TaxAct import feature on FreeTaxUSA? I started my return on TaxAct but want to switch to FreeTaxUSA to save money. Will that help with this issue or just create more problems?

I had the exact same issue with FreeTaxUSA last year! After spending way too much time looking for a delete button that doesn't exist, here's what I learned: The easiest approach is actually Option 2 that Riya mentioned - just go through your existing return section by section and fix what needs fixing. FreeTaxUSA's interface makes this pretty straightforward since you can jump between sections easily. If you're really concerned about accuracy, here's what I did: I printed out a summary of my first attempt, then went through each section systematically with my tax documents in hand. This way I could spot-check everything without losing the work I'd already done correctly. The review section at the end is really thorough too - it caught a couple small errors I missed during my manual review. Unless you made major structural mistakes (like filing status or number of dependents), you probably don't need to start completely over.

I'm dealing with a similar situation and wanted to share something that might be helpful. I was also confused about this 401(k) vs Social Security question until I spoke with HR at my company. They explained it really simply: when you look at your paystub, you'll see that Social Security and Medicare taxes are still being deducted from your full gross pay, even after your 401(k) contribution. That's the key indicator that your entire salary counts for Social Security purposes. The way I think about it now is that 401(k) contributions are "invisible" to the IRS for income tax purposes, but they're completely "visible" to Social Security. So you get the best of both worlds - tax savings now and full Social Security credits for the future. At $40k income with $31k going to 401(k), you're definitely getting all 4 quarters. The math is simple: $40k ÷ 4 quarters = $10k per quarter, which is way above the $1,740 threshold needed for each quarter in 2025. You're in great shape!

I just wanted to add a quick note about something that might be helpful for planning purposes. While everyone has correctly explained that your 401(k) contributions count fully toward Social Security credits, it's worth understanding how this affects your long-term retirement strategy. Since Social Security benefits are calculated based on your highest 35 years of earnings (that were subject to FICA taxes), your current $40k will be part of that calculation even with the large 401(k) contribution. However, Social Security replaces a smaller percentage of income for higher earners, so having a robust 401(k) becomes even more important as your career progresses. The sweet spot you're in right now is building both pillars of retirement - Social Security credits AND substantial 401(k) savings. At your current savings rate of $31k annually, you're setting yourself up really well for retirement security from multiple sources. Just make sure to review this balance periodically as your income grows. You might find that in higher earning years, you want to ensure you're still getting meaningful Social Security credit increases while maximizing your tax-advantaged savings. But for now, you're definitely doing everything right!

Hey Kayla! I just went through this exact situation last month with my Vinted sales. The $600 threshold caught me off guard too. Here's what I learned: First, don't stress about being just over the threshold - the IRS doesn't have different rules for small amounts. You'll need to report it the same way whether it's $643 or $6,430. Since you're selling personal items from your closet, you'll likely qualify for what's called "personal use property" treatment. This means you can claim the original purchase price as your cost basis, and if you sold items for less than you paid (which sounds like your situation), you may end up with little to no taxable income. Here's what you need to do: 1. Report the 1099-K income on Schedule C 2. Document your cost basis for each item (original purchase price) 3. Deduct any selling expenses (shipping, Depop fees, PayPal fees) 4. The difference is your actual taxable profit Keep receipts if you have them, but reasonable estimates are acceptable for personal items you've owned for a while. I used old credit card statements and even photos of similar items online to estimate what I originally paid. The key is showing the IRS that while you received $643 in payments, your actual profit was much less (or possibly zero) after accounting for what you originally spent on those clothes.

Thanks for sharing your situation, Kayla! I went through something very similar last year with my Depop and Mercari sales. The 1099-K definitely caught me by surprise too since I was just decluttering my closet. One thing that really helped me was creating a simple spreadsheet to track everything. I listed each item I sold, what I got for it, and my best estimate of what I originally paid. For clothes I couldn't remember the exact price, I looked up similar items at the stores where I usually shop and estimated based on what they would have cost when I bought them. Don't forget about all the fees you can deduct! Depop takes a 10% fee, PayPal charges processing fees, plus any shipping costs you paid. These all reduce your taxable income. I was surprised how much these added up - it made a big difference in my final tax liability. Since you're only $43 over the threshold, you're in a really manageable situation. Most people in your position end up with very little taxable income once they account for their original costs and all the fees. The important thing is just making sure you report it properly so the IRS can match up your return with the 1099-K they received from PayPal.