Good point! I'm not the OP but my wife is in Japan and their tax treaty definitely complicated things for us.

She's in Thailand. I hadn't even thought about tax treaties! Is there something specific I should be looking at in the Thailand-US tax treaty?

Did the IRS catch this on their own or did you realize the mistake first?

I realized it after talking to a coworker in a similar situation. The IRS hadn't caught it yet, but I didn't want to risk an audit later. My tax preparer said they're getting more sophisticated with their systems for catching filing status discrepancies, especially if there's any history of you being married in their records (like previous joint returns, or if your spouse had previously been in the US). Better to fix it voluntarily than have them come after you later with bigger penalties!

Oh that's super helpful! I actually have an HSA through my employer. So you're saying my HSA contributions reduce not just my income tax but also what I pay for Social Security and Medicare? Does this apply to the additional 0.9% Medicare tax too since I'm over the threshold?

Yes, HSA contributions through your employer's payroll reduce both income tax and FICA taxes (Social Security and Medicare). This is one reason why HSAs are considered triple-tax advantaged - tax-free contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses. Regarding the additional 0.9% Medicare surtax - yes, HSA contributions can help reduce exposure to this as well since they lower your FICA wage base. However, since you're earning $245k and the threshold is $200k for single filers, you'll still have income subject to the additional Medicare tax even after maxing out an HSA (which has a contribution limit of $4,150 for individual coverage in 2025).

Is there a wage cap for the additional 0.9% Medicare tax? Or does that also apply to all income above the $200k threshold with no limit?

What about writing off health insurance? Someone told me LLC owners can deduct health insurance but sole props can't. Is that true?

That's actually not correct. Both sole proprietors and LLC owners can deduct health insurance premiums on their personal tax returns. This is called the self-employed health insurance deduction, and it's available to anyone with self-employment income, regardless of business structure. The rules for deducting health insurance are the same whether you're a sole prop or an LLC taxed as a sole prop. It's an "above-the-line" deduction on your personal return, not a business expense on Schedule C. The business structure doesn't change your eligibility for this deduction.

That's a great analogy! So if I'm already a sole proprietor with a small woodworking business and I form an LLC but don't elect any special tax status, literally nothing changes about my taxes? I'd still file Schedule C?

I agree this sounds like employment income, but doesn't the fact that they're family members change things? I thought there were special rules for family caregiving arrangements?

Family relationships don't fundamentally change the nature of the payments. The IRS looks at the economic reality of the arrangement. If someone is providing childcare services and receiving regular payments that look like compensation, the family relationship doesn't automatically convert that to "support." There are some special rules for family employment situations (like certain FICA tax exemptions for parents employing their children under 18), but those generally don't apply to adult children paying parents. The key question is whether the payments are contingent on providing services (which makes them income) or would continue regardless of services provided (which might make them support).

Thank you all for this helpful information. I had no idea about the Child and Dependent Care Credit - that might explain my daughter's motivation. The distinction between income and support makes sense now. I'm going to have a serious conversation with my daughter about properly classifying these payments and making sure we're both protected. I'm also going to look into my Medicaid options regardless of what she wants - my healthcare needs to be a priority. I appreciate everyone taking the time to explain these complex issues!

How much of a credit can you actually get from this? Is it worth the hassle of filling out another form?

The credit can be up to 50% of your retirement contributions depending on your income level, with a maximum credit of $1,000 for individuals or $2,000 for married couples filing jointly. Even at lower percentages (20% or 10% based on higher income levels), it's definitely worth filling out the form. Form 8880 is actually pretty simple - it only takes about 5 minutes to complete if you already know your retirement contribution amounts. For example, if you contributed $3,000 to your Roth IRA and qualify for the 20% credit rate, that's a $600 reduction in your tax bill - not just a deduction, but a dollar-for-dollar reduction in taxes owed. That's significant for just a few minutes of work!

Yes! This is super important. I did a backdoor Roth conversion last year and had to report it on Form 8606. My tax software (TaxAct) actually didn't prompt me for this correctly and I had to manually add the form.