One thing nobody's mentioned yet - your son could also file Schedule C and take business deductions to offset some of the self-employment tax burden if he decides to just file as a contractor this year. Things like: portion of cell phone used for work, work clothes/boots, travel to job sites, tools purchased, etc. It won't completely solve the problem but might reduce the tax hit somewhat while you work on getting him properly classified for next year.

This is such a common problem with seasonal agricultural work! I've seen this happen repeatedly with local farms and orchards who classify teenage workers as contractors when they're clearly employees. The key test is really about control - if your son shows up at scheduled times, follows the orchard's instructions on how to do the work, and uses their equipment, he's an employee regardless of his age or the seasonal nature of the work. The IRS doesn't have a "seasonal worker exception" that automatically makes someone a contractor. What's particularly frustrating is that legitimate teenage employees earning under $12,550 wouldn't owe any federal income tax and would only pay the employee portion of FICA taxes (7.65%). But with the 1099-NEC, your son is getting hit with the full self-employment tax of 15.3% plus potentially owing income tax if he doesn't have enough deductions. I'd definitely start with a respectful conversation with the orchard owner. Bring documentation of the IRS worker classification tests and frame it as helping them avoid potential compliance issues. Many small agricultural businesses genuinely don't understand these rules and appreciate being educated rather than reported. If they refuse to correct it, you have solid grounds for filing Form SS-8 to get an official determination. The downside is it can take months and might strain the working relationship, but your son shouldn't have to pay extra taxes due to misclassification.

Has anyone mentioned the mortgage interest deduction limits? If you're filing separately, the limit for mortgage interest deduction drops from $750k to $375k of mortgage debt per person. If you have a larger mortgage in a high-cost area, this could be significant.

Great discussion everyone! As someone who's been through this exact scenario, I want to add one more consideration that saved us a lot of money: the Net Investment Income Tax (NIIT). At your income level ($410k), you're definitely subject to the 3.8% NIIT on investment income if filing jointly (kicks in at $250k for joint filers). But if you file separately, the threshold drops to $200k per person, which might actually work in your favor depending on how your investment income is distributed between you and your husband. If most of your investment income is in one spouse's name and that spouse makes significantly less than $200k, filing separately could help you avoid or reduce the NIIT. This is especially relevant if you have rental properties, dividends, or capital gains. Also, don't forget about the Additional Medicare Tax (0.9%) which has similar thresholds - $250k joint vs $200k separate. The interaction between these taxes and your local tax situation could be the deciding factor. I'd definitely recommend running the numbers with all these factors included, not just the basic income tax calculation. The savings from avoiding these additional taxes might outweigh the loss of other joint filing benefits.

Don't forget to look into cost segregation studies for your rental properties! Even with income limitations, accelerated depreciation on components of your property can still benefit you long-term by increasing those suspended losses that you'll eventually get to use.

The passive activity loss rules can be really frustrating when your income crosses that threshold! One thing that hasn't been mentioned yet is the potential for material participation elections. If you can document significant involvement in your rental activities (not just the real estate professional test, but actual material participation), you might be able to treat some rental income as non-passive. Also, don't overlook the benefits of proper entity structuring. Some rental property owners benefit from holding properties in LLCs or partnerships where the income characterization might be different, though this requires careful planning with a tax professional. The key is to keep meticulous records of everything - time spent, expenses, improvements, etc. Even if you can't use the losses now, they're building up valuable tax benefits for the future. I've seen people with suspended losses from years ago get massive tax savings when they eventually sell their properties or their income situation changes.

Harper, you're definitely not alone in this situation - health emergencies have a way of putting everything else on the back burner, and that's exactly as it should be. Your husband's health was the priority, and you made the right choice focusing on what mattered most. From reading through all the responses here, it's clear that this withholding compliance program letter is just an unfortunate timing issue. The IRS systems that monitor for non-filing patterns work independently from their return processing systems, so the December letter was generated before your recent filings could be reflected in their compliance database. The most encouraging thing about your situation is those consistent large refunds - $7,000+ per year is solid evidence that you're actually overwithholding, not underwithholding. This means the compliance program was triggered purely by the filing gap, not any actual tax withholding issues. When you do call the IRS, I'd suggest framing it this way: "I received a withholding compliance program notice, but I believe it was generated due to late filings from 2020-2021 caused by a family medical emergency. I've since filed both returns and consistently receive large refunds showing proper withholding. Can you confirm this will be resolved once my recent filings are processed?" Having that clear narrative ready will help you feel more confident on the call, and it gives the agent all the key information they need to understand your situation. You're already back in compliance - it's just a matter of letting their systems catch up.

Harper, I'm really sorry to hear about your husband's health struggles - major heart surgery and complications would absolutely take priority over everything else. Please don't be hard on yourself for missing those filings during such a difficult time. Reading through all the responses here, I think you can take a deep breath. This compliance program letter is almost certainly just an automated system flag triggered by those missed 2020-2021 filings, not because you've done anything wrong with your withholding. The timing makes perfect sense - their compliance monitoring system generated the December letter before your recent filings (from 10 days ago) could be processed and updated in their system. Here's what's actually really encouraging about your situation: those consistent large refunds ($7K+ each year) are strong proof that you're having MORE than enough taxes withheld from your paycheck, not less. The IRS compliance program targets people who consistently underwithhold, but you're clearly in the opposite situation. When you call the IRS, I'd recommend having this simple explanation ready: "I received a withholding compliance notice, but I believe it was triggered by late 2020-2021 filings due to my husband's medical emergency. I've now filed both returns and consistently receive large refunds showing I'm not underwithholding. Will this be resolved automatically once my recent filings are processed?" The systems just need time to catch up and recognize that you're back in compliance. You've already done the hard part by getting those returns filed!

Does anyone know if the S corp election date on your acceptance letter can be different from what you requested on Form 2553? I selected "beginning of tax year" on my form but I'm worried they might assign a different date.

I went through this exact same situation about 6 months ago and completely understand the anxiety! The IRS processing times for Form 2553 have been really inconsistent lately - some people get their acceptance letters in 3-4 weeks, others wait 8-10 weeks or more. Since you're at 4 weeks, I'd give it another 2-3 weeks before getting too worried. However, if you have upcoming quarterly filings that depend on knowing your S Corp status, here are a few things that helped me: 1. Keep detailed records of when you submitted Form 2553 (certified mail receipt, fax confirmation, etc.) 2. If you need to file quarterly taxes before receiving confirmation, you can proceed based on your intended election date, but include a note explaining the situation 3. The IRS Business Tax Line (800-829-4933) can sometimes provide status updates, though wait times are brutal The acceptance letter will definitely show your effective date clearly, so once you get it, you'll have everything you need. In my case, my effective date matched exactly what I requested on the form since I submitted within the proper timeframe. Hang in there - the letter should arrive soon!