Thanks for this detailed advice! Did you also need to submit a revised Form 940 for 2022, or was providing the proof of state payments enough? I'm wondering if I need to get our accountant involved to redo any filings.

We didn't need to submit a revised Form 940. The documentation of state payments was sufficient since we had already filed the original Form 940 correctly - the issue was just that the states hadn't reported our payments to the IRS. I'd recommend having your accountant review the documentation package before submission though. In our case, our accountant noticed that we needed to include Schedule A of Form 940 to properly document the credit reduction states where we had employees. This was crucial for getting the assessment reversed.

Look at Box 16 on the notice - it should list the "Credit Reduction States" that are causing the issue. For 2022, there were specifically 5 states that had FUTA credit reductions: California (0.9% reduction), Connecticut (1.5%), Illinois (1.2%), New Jersey (1.8%), and New York (1.2%). If your notice doesn't specify, you'll want to gather documentation for any of these 5 states where you had employees in 2022.

Do you know if these state credits are only for people who pay for care or also for family members who provide the care themselves? My brother has moved in with my mom who has early Alzheimer's and had to reduce his work hours, but he's not getting paid.

It varies by state, but many state caregiver credits actually do cover family members providing unpaid care. In my state, lost income due to caregiving responsibilities can qualify for the credit. Your brother should check specifically for "family caregiver tax credits" in your state. Some states also offer credits for making accessibility modifications to homes for people with conditions like Alzheimer's. The eligibility requirements differ significantly between states though, so have your brother check your state's department of revenue website or call them directly.

I used TurboTax last year for a similar situation with my father's medical expenses. It does prompt you with questions about dependents and medical costs, but I found it didn't really explain the nuances very well. I ended up consulting with an accountant afterward who found several deductions I'd missed. For complicated situations like this, I think it's worth paying for professional help.

I didn't even think about that! I do have some investments where I might have screwed up the cost basis method. I'm using both average cost and specific identification for different accounts but might have mixed them up. I'll go back through and make sure I'm consistent with each investment. Could differences in rounding also cause this error? Like if I rounded something to the nearest dollar in one place but used the exact amount with cents in another?

Yes, rounding differences can absolutely trigger this error! The IRS's validation system is looking for exact matches between forms, so even small rounding discrepancies can cause problems. I always recommend using the exact amounts with cents throughout your return for consistency. Another thing to check is if you sold partial shares of any investments. Sometimes tax software can handle these differently in different sections of the return, especially with reinvested dividends or drip programs where you might have tiny fractional shares.

I had this happen with Free File last year! The tricky part with Fillable Forms is that it doesn't have the error-checking capabilities of paid software. What worked for me was printing out ALL the forms and manually comparing every single number that appeared in multiple places. Look especially at any investment-related forms. For me it was literally a $1 difference between what I reported as interest income on the 1040 vs what was on Schedule B. Such a tiny error but it triggered the rejection.

What about retirement accounts in foreign countries? I have something similar to a 401k in Australia, and I've heard conflicting things about how the US treats these accounts.

Foreign retirement accounts are one of the trickiest areas for US expats. Unfortunately, unless there's a specific provision in the tax treaty between the US and your country (like there is for Canadian RRSPs), the US often doesn't recognize the tax-deferred status of foreign retirement accounts. For Australian superannuation accounts, they exist in a gray area. Some tax professionals treat them as equivalent to US retirement accounts, others report them as foreign trusts requiring complex reporting, and others treat them as regular investment accounts. Recent IRS guidance has leaned toward treating them as foreign pension plans, but it depends on your exact situation. I recommend getting specific advice on this issue from a tax professional who specializes in US-Australia tax matters, as getting it wrong can have significant consequences.

Thank you for sharing your experience! It's reassuring to hear from someone who's been through the same situation. I was definitely imagining scenarios where I'd be pulled into secondary inspection and questioned about my tax situation! Did you use the Streamlined Filing Procedures that others mentioned? And how long did the whole process take from starting to get compliant until you were fully caught up with the IRS?

Yes, I used the Streamlined Filing Procedures - it was fairly straightforward but took about 3 months from start to finish. I gathered all my foreign tax documents, bank statements, and employment records first (that was the most time-consuming part). Then I worked with a tax preparer who specialized in expat issues to complete the necessary forms. The actual filing involved submitting 3 years of back tax returns along with a statement explaining why I failed to file (I just honestly explained I didn't understand my obligations as a dual citizen living abroad). For the FBAR forms (reporting foreign accounts), I had to file 6 years worth. About 4 months after submission, I received notices confirming everything was processed. I didn't owe any taxes thanks to the Foreign Earned Income Exclusion and Foreign Tax Credits for taxes I'd already paid in the UK.

This is great advice. What specific questions would you recommend asking to really test if they know eCommerce? And did you find someone who charges flat monthly rates or hourly?