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Have you tried looking at the actual tax forms that were submitted? If you go to your TurboTax account, you should be able to download a PDF of your actual submitted return. Check Form 1040 specifically and look at the filing status checkbox that was selected and whether the dependents section is filled out correctly. I had a similar issue last year and discovered that somehow my dependents weren't linked to my return even though I had entered all their information. The PDF showed what was actually sent to the IRS versus what I thought I was submitting.
Thanks for the suggestion! I just downloaded the PDF from TurboTax and you're right - the form shows "Single" checked even though the TurboTax interface was showing "Married Filing Separately" throughout the whole process. And the dependents section only lists one of my children, not both! No wonder the refund dropped so much. Should I file an amended return now or try to contact the IRS first?
I would recommend filing an amended return (Form 1040-X) as soon as possible. The IRS won't automatically fix this kind of error, and waiting for them to contact you could take months and potentially lead to issues with your refund. When you file the amendment, make sure to clearly indicate that you're changing from Single to Married Filing Separately and adding the missing dependent. Include all required supporting documentation for the dependent claim. If you do this quickly, it might not significantly delay your refund, though amended returns typically take longer to process than original returns.
I'm a little confused... if you and your wife are still together, why did you choose Married Filing Separately instead of Married Filing Jointly? MFJ usually gives better tax benefits in most situations, especially when one spouse isn't working. You might actually get an even bigger refund if you change to MFJ.
Not always true! There are situations where MFS makes more sense, like if one spouse has income-based student loan payments, certain medical deductions, or if there are liability concerns. My husband and I file separately because it significantly lowers my income-based repayment for student loans.
We chose MFS mainly because of my wife's student loan situation. She's on an income-based repayment plan, and filing jointly would increase her required payments since they'd be based on our combined income. We've run the numbers both ways and even with the tax benefits of MFJ, we still come out ahead with MFS when factoring in the loan payment savings. What's frustrating is that I carefully selected MFS but somehow TurboTax changed it to Single without clearly showing me that change was happening. I need to get this fixed ASAP!
As a small accounting firm owner, I've dealt with these W-2 penalties several times. One thing not mentioned yet - make sure to specify in your request that you want an abatement of both the penalty AND any interest that's accrued on the penalty amount. The IRS sometimes will remove the penalty but forget to remove the interest. Also, if your first request is denied (which happens sometimes automatically), appeal it! The appeals process often gets you in front of someone who has more authority to consider the circumstances. We've had about 70% success rate with penalty abatements when we show a clear timeline and documentation of efforts to comply.
Thanks for mentioning the interest part - I wouldn't have thought of that! Do you typically include bank statements or something to prove when we called the SSA? I'm trying to figure out what kind of documentation would be most convincing.
For documentation, phone records are helpful if you have them, but emails are better since they show the content of the communication. If you have any confirmation emails from when you registered the new employee with the SSA, definitely include those. Screenshots of the registration process showing dates are also useful. The postmarked envelope that contained your PIN is excellent evidence - keep that if you still have it! What really helps is creating a simple timeline document that lines up all your actions chronologically so the IRS can easily see your good faith efforts. The clearer you make it for them, the better your chances.
Just wondering - did anyone try the IRS's Online Payment Agreement system for this? We had a smaller W-2 penalty (about $2800) and couldn't get it abated, but we were able to set up a payment plan over 72 months which made it much more manageable. The interest rate wasn't terrible compared to other options.
I did this for a different tax issue. The online setup was pretty easy but there's a small setup fee. I think it was like $130 for the online application but would have been more if I'd done it by phone or mail. Just be aware that interest continues to accrue on the outstanding balance throughout the payment plan.
Don't forget to check if you qualify for the Earned Income Tax Credit (EITC) with that income level! At around $24k/yr, you might be eligible for a decent credit, especially if you have any dependents. Even if the dental deduction doesn't work out, the EITC is refundable, meaning you can get money back even if you don't owe any taxes. It's often overlooked and could be worth more than the dental deduction anyway.
Thanks for bringing up the EITC! I actually don't have any dependents, it's just me. Would I still qualify? And would that be instead of the dental deduction or in addition to it?
You can still qualify for EITC without dependents, though the amount is smaller. For 2025, if you're single with no children and income around $24k, you might qualify for a small EITC (around $600-700 depending on your exact income). The EITC is completely separate from the dental deduction issue. You can claim both if you qualify for both. The EITC is a credit while the dental expense would be a deduction if you itemize. Credits directly reduce your tax bill dollar-for-dollar, while deductions just reduce your taxable income, so credits are generally more valuable.
Has anyone considered that OP might qualify for the medical expense FSA through work? If your employer offers it, you can contribute pre-tax dollars up to $3,200 for 2025. Even though it wouldn't help with expenses already paid, it's something to consider for future medical costs.
Good point about the FSA, but it sounds like OP might not have benefits if they're making around $24k. Might be part-time or gig work. The FSA is only helpful if you have access to employer benefits.
Maybe consider a third approach that worked for me: hire a bookkeeper for just her tutoring business. For my wife's art sales, we hired a college student studying accounting for like $25/hour who comes once a month, sorts through her receipts, and maintains simple income/expense tracking. This removes the personal tension between you two and creates accountability with an outside person. My wife doesn't mind showing her "financial mess" to the bookkeeper since there's no judgment, and it's been worth EVERY penny for our marriage!
Don't forget that ultimately YOU are responsible too if you sign a joint return. My ex-husband had unreported income and guess who the IRS came after years later? BOTH OF US! Even after we were divorced! I had to file for innocent spouse relief which was a nightmare to prove. Either get her to cooperate, file separately, or prepare for potential consequences. The IRS doesn't care about your marriage dynamics, they just want their money and proper reporting.
Oliver Schmidt
One thing to keep in mind - if you also contribute to your HSA outside of payroll (like direct deposits from your bank account), those are handled differently. Those would be reported as employee contributions, and you'd need to deduct them on Form 8889. I made this mistake last year where I had both payroll deductions (code W) and separate contributions I made directly. I didn't realize I needed to handle them differently on my tax return.
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Natasha Volkov
ā¢Does TurboTax automatically figure this out if you enter both types of contributions? Or do you have to manually separate them somehow?
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Oliver Schmidt
ā¢TurboTax will ask you to enter both types separately. When you enter your W-2, it captures the code W contributions automatically. Then it will specifically ask if you made any additional contributions directly to your HSA outside of payroll. Just make sure you don't double-count by entering your payroll deductions again in the "direct contributions" section. Only enter any additional contributions you made separately from your paycheck.
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Javier Torres
Another thing to check is whether your employer made any actual employer contributions (like an HSA match) in addition to your payroll deductions. Both would show up with code W, but you'd want to make sure the total amount looks right. For example, my company contributes $500 annually to my HSA plus my own payroll deductions. So my W-2 shows the combined total with code W.
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Emma Wilson
ā¢That's a good point. How can you tell which portion came from the employer vs your own money if they're combined under the same code?
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