With your income at $580k, you're definitely going to be phased out of the Child Tax Credit completely. The phaseout for single filers starts at $200,000 and you'd lose the entire credit well before your income level. Your wife at $35k would get the full $2,000 credit, so she should absolutely be the one claiming your child. Also worth noting - if your wife qualifies for Head of Household status (which she might if she's paying more than half the household costs for her and the child), that filing status comes with better tax brackets and a higher standard deduction than single. This could save her even more money beyond just the Child Tax Credit. Don't forget about the Child and Dependent Care Credit for your daycare expenses too! Same logic applies - it's also income-limited, so having your wife claim those expenses will likely result in a bigger benefit than if you tried to claim them.

This is a really smart question to ask! Given your income levels, you're absolutely right that your wife should claim the child. With your $580k income, you're completely phased out of the Child Tax Credit (the phaseout starts at $200k for single filers), while your wife at $35k would get the full $2,000 credit. One additional consideration - since you mention you cover more household expenses, make sure you're both clear on who can legitimately claim Head of Household status. The person claiming the child as a dependent must also be paying more than half the costs of maintaining the home to qualify for HOH. If you're covering most expenses but your wife is claiming the child, she might not meet the HOH requirements and would need to file as single. You might want to consider documenting who pays for what household expenses, or potentially restructuring how you split costs if it makes sense tax-wise. Sometimes shifting some bill payments to the lower-income partner can help them qualify for HOH status, which provides better tax rates and a higher standard deduction on top of the Child Tax Credit savings. Also definitely look into the Child and Dependent Care Credit for your daycare costs - same income limitation logic applies there too!

Has anyone had success fighting a CP2000 for HSA distributions online through the IRS response portal rather than mailing everything? I'm wondering if I should just use their online system or if it's better to send a physical response with all my documentation.

I dealt with this exact same situation last year! You're absolutely right to question it - HSA distributions for qualified medical expenses shouldn't be taxable. The problem is that the IRS computer system sees your 1099-SA showing the distribution but doesn't automatically know it was for qualified expenses. Even though your 1099-SA has Distribution Code 1, you still need to file Form 8889 with your tax return to officially report to the IRS that these were qualified medical expenses. Without Form 8889, their system assumes the entire distribution is taxable income. For your CP2000 response, I'd recommend: 1. Complete Form 8889 for the tax year showing your qualified medical expenses 2. Include copies of your 1099-SA forms 3. Attach receipts or documentation for the medical expenses that match your distribution amounts 4. Write a cover letter explaining that these were qualified medical expenses Keep copies of everything you send! The IRS should accept your explanation once they see the proper documentation. I went through this process and they completely reversed the proposed tax after reviewing my Form 8889 and supporting documents.

Has anyone used a structured settlement instead of taking a lump sum? My tax guy mentioned this might help spread out the tax burden over multiple years.

Great question about EEOC settlements! I went through this exact situation about 18 months ago with a $95K settlement. Here's what I learned that might help: First, make sure your settlement agreement clearly breaks down what each portion represents - back pay, compensatory damages, punitive damages, attorney fees, etc. This is crucial for tax purposes. Back pay gets treated as W-2 wages (subject to employment taxes), while compensatory damages are taxable income but not subject to employment taxes. One key thing - if you had any documented physical symptoms from the workplace stress (ulcers, migraines, high blood pressure, etc.), those portions may qualify as tax-free under IRC Section 104(a)(2). You'll need medical documentation linking these conditions to the workplace discrimination. Also consider timing - if you're close to year-end, you might want to delay the settlement payout until January to push the tax liability into the next year, especially if you expect lower income next year. The "higher tax bracket" fear is common but remember that tax brackets are marginal - only the income above each threshold gets taxed at the higher rate, not your entire income. Still, spreading it out through installments or maximizing deductions can definitely help reduce the overall tax hit. Definitely consult with a tax professional who has experience with employment settlements - regular accountants often miss the nuances of these cases.

Anyone know how long the paper check usually takes to arrive? I made the same mistake but it's been 4 weeks already and still nothing in my mailbox.

This exact same thing happened to me two years ago! I was absolutely panicking when I realized I'd transposed two digits in my routing number. Like others have said, the good news is your money is completely safe - there's basically zero chance it could end up in someone else's account since the routing/account combo won't match any real account. I ended up getting my paper check about 5 weeks after I filed, which was actually faster than I expected based on what I'd read online. The hardest part was just the waiting and not knowing for sure what was happening. One thing I learned: you can track the status using the "Where's My Refund" tool on IRS.gov. Once they attempt the direct deposit and it fails, the status will update to show they're mailing you a check instead. That at least gives you some peace of mind that the process is working as expected. Your $3,200 is definitely not lost - just delayed by a few weeks. Try not to stress too much about it (easier said than done, I know!).

Just wanted to add one more perspective as someone who went through a similar situation a few years ago. My apartment complex had miscalculated utility charges and issued refunds totaling about $1,800 to affected tenants. I was initially worried about the tax implications too, but after consulting with my accountant, she confirmed exactly what everyone here has said - it's not taxable income since it's just correcting an overcharge. The key thing she emphasized was keeping good records, which it sounds like you're already doing by taking the check. One small tip that helped me: I wrote the explanation directly on the deposit slip when I deposited the check, something like "Rent overcharge refund 2022-2024 - not taxable." That way if I ever need to trace the deposit years later, the explanation is right there in my bank records. Your management company sounds like they're handling this professionally. In my case, they even sent a letter at year-end summarizing all the refunds they'd issued, which was helpful documentation even though I didn't need it for taxes. Some companies go that extra mile to help tenants with record-keeping. You're definitely on the right track with how you're handling everything!

This thread has been incredibly helpful! I'm dealing with a very similar situation where my property management company discovered they'd been incorrectly applying a "technology fee" that wasn't actually authorized in our leases. They're issuing refunds going back about 18 months. Reading through all these responses, I feel much more confident that I don't need to worry about tax implications on my end. The explanations about this being a correction of an overpayment rather than new income make perfect sense, especially the analogy about getting refunded for paying twice for something. I'm definitely going to follow the advice about taking a check for documentation purposes and keeping detailed records. The tip about writing an explanation directly on the deposit slip is brilliant - I never would have thought of that but it creates a perfect paper trail. It's also reassuring to hear from the property management professional that these kinds of corrections are actually pretty common and that legitimate companies handle them properly. I was starting to wonder if this was some kind of red flag, but it sounds like responsible property managers actually need to make these corrections when they discover billing errors. Thanks everyone for sharing your expertise and experiences - this community is amazing for getting real-world guidance on tricky tax situations!