But wouldn't the 401k plan administrator be responsible for coding this properly? If they put code E instead of something else, couldn't that be the actual problem rather than the IRS misinterpreting it?

You're absolutely right that the plan administrator has primary responsibility for coding 1099-R forms correctly. Sometimes administrators do use incorrect codes, and that could be part of the problem here. Code E isn't necessarily wrong, but there's some ambiguity in how it's applied. Ideally, the administrator should have used a distribution code that more clearly indicates a return of after-tax contributions. It might be worth contacting your plan administrator to verify they used the correct code for your specific situation. They can issue a corrected 1099-R if needed, which would save you the hassle of explaining things to the IRS.

I used H&R Block software for a similar situation and had to manually override it. There should be an option to specify that the distribution isn't taxable despite what the 1099-R coding suggests. You might need to include an explanation or use the tax software's "notes" feature to document why you're treating it differently than the standard interpretation of the form.

Is there a minimum amount required for reimbursement? I have a few small co-pays like $20-30 each that I paid with my debit card.

There's typically no minimum amount required for reimbursement - you can request even small amounts like $20-30 copays. However, some people prefer to batch smaller expenses together and request reimbursement quarterly or annually just to reduce the paperwork and transactions. One strategy some people use is to intentionally pay smaller expenses out of pocket, save the receipts, and let their HSA funds grow tax-free for years. Then they can reimburse themselves much later (even in retirement) when they might need the cash more. As long as you have the documentation showing the expense was HSA-eligible and incurred after you established your HSA, there's no time limit.

I actually went through an IRS audit last year that included reviewing my HSA. As long as you have proper documentation, there's no problem claiming old expenses. The IRS specifically states there's no time limit. I had reimbursed myself for expenses from 4 years prior and provided: 1. Original receipts showing the medical nature of expense 2. Proof of payment (credit card statement) 3. Proof it wasn't reimbursed by insurance (EOB) They didn't question it at all.

I tried calling FreeTaxUSA but the wait times were crazy long and when I finally got through, the rep just kept repeating that I need to mail in my return. They didn't seem to have any way to override the system or resubmit electronically. Have wait times gotten any better for reaching them now that we're past peak filing season?

Wait times are definitely better now that the initial rush is over. Try calling first thing in the morning when they open (check their website for hours) - I've found that's when wait times are shortest. Ask specifically to speak with a tier 2 support agent who has experience with e-file rejections. The first-level support often just follows basic scripts, but the more experienced agents can sometimes find workarounds. Be polite but persistent about needing a solution other than mailing your return, as they sometimes have processes for special cases.

I think it might be related to their verification system. TurboTax charges premium prices partly because they invest more in their backend systems that communicate with the IRS. FreeTaxUSA is great for the price, but their error handling seems less sophisticated. I switched to TaxSlayer after having similar issues and haven't had problems since.

1 Thanks for the spreadsheet idea - that sounds like a really clear way to show the information. Did you include any other documentation besides the two 1099 forms?

10 I included copies of both 1099-NECs, the relevant schedule from my tax return showing where I reported the income, and a letter from the company that issued the forms confirming the second one was a correction. The letter wasn't strictly necessary, but I think it helped speed things up because it was official confirmation directly from the source.

16 Good advice! What's the best way to document that you've sent stuff to the IRS? Should you use certified mail or is there some better method?

22 Certified mail with return receipt is absolutely the way to go. It costs a bit more but gives you legal proof that the IRS received your documents and when they received them. I also take photos of everything I send before mailing it, and keep a detailed log with dates, document descriptions, and certified mail tracking numbers. For extra protection, you can send a fax as well (yes, the IRS still uses fax machines!) and keep the confirmation page. Having multiple methods of proof has saved me more than once when dealing with IRS correspondence.

How exactly do you adjust your withholdings? I've seen this advice before but I have no idea how to actually do it.

You need to fill out a new W-4 form and submit it to your employer's payroll department or HR. The form was redesigned in 2020, so it's different from the old withholding allowances system. The new form has a section where you can specify an additional amount to withhold from each paycheck. For example, if you owed $1255 and get paid bi-weekly (26 paychecks per year), you might want to have an extra $50 withheld per paycheck ($1300/year) to cover what you'd otherwise owe at tax time.

FreeTaxUSA has been my go-to for years! It handles everything TurboTax does but for a fraction of the cost. Only downside is the interface isn't as pretty, but who cares when you're saving hundreds?