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Don't forget to check if you get a refund from your escrow account! When I paid off my mortgage, the bank had collected money for future property tax payments that hadn't been paid yet. They sent me a refund check about 3 weeks after payoff with the remaining escrow balance. This doesn't affect how you report property taxes on your return (you only deduct what was actually paid to the taxing authority), but it's good to know you might have some cash coming back.
Is that escrow refund taxable? I got one last year but wasn't sure if I needed to report it as income.
The escrow refund isn't taxable income. It's simply returning your own money that was held in the account. You never got a tax deduction for putting money into escrow - you only get the deduction when the money actually gets paid out for property taxes or insurance. Think of escrow as a forced savings account. Getting that money back is like withdrawing from your savings - not income.
Just a tip: Make sure to update your address with the county tax assessor's office after you pay off your mortgage! I didn't do this and my tax bill went to my old mortgage company. Almost missed the payment deadline and would have incurred penalties. Usually there's a form on your county's website for this.
Yes! This happened to a friend of mine and they got hit with a $175 late fee because the bill went to their old mortgage company. So frustrating.
Something similar happened to me, but I found there's a specific IRS form you can fill out to request a refund of overwithholding directly from the IRS rather than waiting for your employer to adjust it. It's faster in some cases. Form 8379 lets you request a refund of overwithholding mid-year in certain circumstances. You'll need to document the error that caused the overwithholding and provide evidence of the correction. It's not widely known but can speed things up by weeks or months.
Thanks for suggesting this form! I've never heard of being able to request a mid-year refund directly from the IRS. Do you know roughly how long the processing time is if I submit Form 8379? I'm weighing whether to wait for my July paycheck as they suggested or try to speed things up with this form.
The processing time varies, but generally it takes 6-8 weeks after they receive the form. That might not be faster than waiting for your July paycheck if that's coming in the next few weeks. Actually, I need to correct something - I meant Form 843 (Claim for Refund and Request for Abatement), not Form 8379. Form 8379 is for injured spouse relief, which is something completely different. My mistake on the form number!
Has anyone used the IRS2Go app for this kind of situation? I've heard it lets you check your withholding and request adjustments.
IRS2Go doesn't let you request withholding adjustments - it just lets you check refund status, make payments, and access tax records. For withholding issues you still need to work through your employer or call the IRS directly.
7 I've had good experience with Credit Karma Tax (now Cash App Taxes). Completely free for federal AND state, and handles W-2s easily. I've used it for 3 years now. TurboTax definitely tries to upsell you constantly. They're owned by Intuit which also owns Credit Karma, but somehow the Cash App version has stayed completely free.
11 Does Cash App Taxes handle 1099 income? I tried using Credit Karma last year but it seemed confused by my freelance income situation.
7 Yes, Cash App Taxes handles basic 1099 income pretty well now. They've improved it a lot since the Credit Karma days. For simple freelance situations, it works fine. However, if you have more complicated self-employment situations with lots of business deductions or inventory, you might want something more robust. For your situation with just one W-2 and one 1099, it should work perfectly and stay completely free. The interface is cleaner now too compared to when it was Credit Karma Tax.
5 Don't forget about the IRS Free File program! If your adjusted gross income is under $73,000, you can use brand-name software for free. The link is on the IRS website. The companies can't upsell you through this program like they can if you go directly to their websites. TaxSlayer and FreeTaxUSA both participate and are good options for simple returns. H&R Block and TurboTax used to be in the program but dropped out (suspicious, right?).
I'm a bit late to this thread, but I wanted to add that I was in a similar situation working as the on-site maintenance person at a seniors community. What worked for me was having the landlord issue a 1099-MISC for the value of the rent reduction. I then deducted legitimate business expenses related to the work I did (tools, supplies, etc.) on Schedule C. Not sure if that's the most tax-advantageous way, but my tax guy said it was the cleanest documentation-wise.
Did you have to pay self-employment taxes on the 1099 income? I'm in a similar situation and wondering if that approach would cost more than just reporting it as regular income.
Yes, I did have to pay self-employment taxes, which was about 15% on top of regular income tax. That was definitely the downside of the 1099 approach. But what helped offset some of that was being able to deduct legitimate business expenses that I wouldn't have been able to deduct otherwise. I was able to write off a portion of my phone bill (since I was on call), work boots, tools I purchased, and even mileage when I had to drive to purchase supplies. My tax guy helped me identify all the eligible deductions, which reduced the taxable income substantially.
Has anyone actually looked at what the IRS says about Section 119? It specifically states that "The value of meals furnished to an employee by the employer is excludable from the employee's gross income if they are furnished on the employer's business premises and for the employer's convenience." Same applies to lodging with the additional requirement that "the employee must be required to accept the lodging as a condition of employment." If you were already living there and THEN they asked you to do work, that's different from being required to live there TO do the work. Seems like an important distinction.
Gianni Serpent
In my experience working with clients who have similar issues, it's important to consider a few other factors beyond just the statutes of limitations: 1. If you receive a CP2000 notice from the IRS about the unreported income (which can happen if they received a 1099 for that cash payment), you'll need to respond even if you're past the normal 3-year period. 2. Some states have different statutes of limitations than the federal government, so you might still have state tax implications. 3. The peace of mind of having everything properly filed might be worth more than the hassle of amending. That said, in your specific scenario with such a small amount and being well past the 3-year mark, I'd personally lean toward not amending unless you receive a notice.
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Aliyah Debovski
ā¢Thanks for this additional perspective! I never received any CP2000 notices or any communications from the IRS about this, so I'm guessing they don't have any records of this cash income (it was truly a small cash side gig). As for state taxes, I live in a state with no income tax so thankfully that's not an issue for me. I think I'll follow the consensus advice here and not worry about amending the return at this point. The amount is tiny, I've already overpaid, and it sounds like the assessment period has passed anyway. Really appreciate everyone's input!
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Gianni Serpent
ā¢You're in a good position then without state income tax concerns and no CP2000 notice. At this point, the administrative burden of filing an amendment likely outweighs any benefit, especially since you've already overpaid. The IRS generally focuses their resources on cases where additional tax is owed rather than situations like yours. Glad you've found clarity on how to proceed! Sometimes the best action is simply moving forward and applying what you've learned to future tax years.
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Henry Delgado
Just want to add one more thing that nobody has mentioned - if that unreported cash income was from self-employment work (like a side gig), technically there's no minimum threshold for reporting it, and the statute of limitations can be different than for regular income. But honestly with the amount being so small (under $10 in taxes owed) and you already overpaid by much more than that, I've never heard of the IRS pursuing something like this. The cost of processing an amended return would be more than what they'd collect!
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Olivia Kay
ā¢I think this is a good point. Wasn't there a special rule for self-employment tax though? Like you don't owe SE tax if the amount is under $400 for the year or something?
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