Thanks for mentioning this! I definitely made under $10k for the year, so maybe I'd qualify for that credit? And you're right - I never got any forms from the company, so maybe they didn't report it. Would that make my penalties less severe?

You should definitely check if you qualify for the EITC. For 2023, a single filer with no children could qualify with income up to about $17,640, so you're well within that range. This could potentially give you a refundable credit of several hundred dollars. Regarding the unreported income, it's a double-edged sword. If they didn't report it, the IRS might not know you were supposed to file, which means they haven't been actively pursuing you for non-filing. However, you're still legally obligated to report all income regardless of whether you received a 1099. The safest approach is always to file and report everything accurately, even if it's late.

Definitely good to know. I'm in Texas so I think we don't have state income tax, but I'll double check to make sure I'm not missing anything else!

That's a great point I hadn't considered! My company does offer a 401k that I'm not fully maxing out yet. I'm putting in about 10% of my salary but could definitely increase that. We also have an HSA option I haven't been using. Would increasing 401k contributions now still help reduce my MAGI for the whole year, even though we're partway through 2024?

Yes, increasing your 401k contributions now will still help reduce your 2024 MAGI, even though we're partway through the year. Your MAGI calculation only looks at your total contributions for the year, not when during the year they were made. If you significantly increase your contribution percentage for the remaining months, you can make up for the lower contribution rate from earlier in the year. The HSA is another great option if you have a qualifying high-deductible health plan. The $4,150 contribution limit (for individual coverage) for 2024 comes straight off your MAGI calculation. Between maxing out your 401k and adding an HSA, you could potentially reduce your MAGI by enough to stay within the Roth contribution limits, avoiding the need to withdraw anything.

Thanks for clarifying the 5-year rule! One question though - if OP does the backdoor Roth conversion, doesn't that start a NEW 5-year clock for those converted funds? I'm trying to understand if there's any disadvantage to the backdoor approach versus direct contributions if you might need access to the money before 59.5.

Yikes, that's scary. Do you know if the payment plan stops the penalties from accumulating? I'm definitely calling them this week.

The payment plan doesn't completely stop penalties and interest, but it does prevent further collection actions like liens and levies as long as you keep making payments. The failure-to-pay penalty drops from 0.5% to 0.25% per month when you're on a plan, which helps a little. Interest (currently around 5%) continues regardless. Still way better than ignoring it though - I learned that lesson the hard way!

This is great advice! I got first-time abatement for a similar situation. Just call the IRS and specifically ask for "first-time penalty abatement" - many agents won't offer it unless you specifically request it.

Thank you all for the helpful responses! I checked my 2020 return and found line 24 showing my total tax liability. Just to confirm, this is the amount I should use to make sure I've paid enough for 2021 through the combination of withholding and estimated payments, right?

Exactly right! Line 24 from your 2020 return is the number you should use as your target for total 2021 payments (both withholding and estimated payments combined). If your income in 2020 was less than $150,000, you need to pay 100% of that line 24 amount. If your 2020 income was over $150,000, you need to pay 110% of that line 24 amount to hit the safe harbor protection against underpayment penalties.

This is so important! My first year being self-employed I completely underestimated my tax liability because I forgot about the self-employment tax. Ended up owing a bunch more than I planned for.

Where exactly in H&R Block do you find this? I'm looking at that section right now and I don't see anything specific about "prior Roth contributions." Is it hidden in some submenu?

It's a bit buried in the interface. After you get to the "IRA, 401(k), or Other Retirement Plans" section, you need to click on the specific Roth IRA contribution entry. Then there should be an "Advanced" or "Additional Information" button or link. Click that and you'll see additional fields, including one for your previous years' contributions or basis amount. If you're using the desktop version rather than the online version, the navigation might be slightly different, but the concept is the same - look for an advanced or additional info section related to your Roth IRA entries.

I've been using TaxAct for years and have never seen any warning about Roth IRA basis. I wonder if this is just an H&R Block thing or if I've been missing something important all along?