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I had this exact situation last year. Here's what happened: my 401k administrator returned excess contributions with code E, and then the IRS computer system automatically flagged it as taxable because many code E distributions ARE partially taxable (if there were earnings on the excess contributions). The key is, like others mentioned, that your Box 1 and Box 5 are identical, proving these were 100% after-tax contributions with no earnings. Don't just pay the extra tax - this is worth fighting!
Thanks for sharing your experience! Did you end up having to file an amended return, or were you able to get it resolved by just responding to the IRS notice?
I didn't need to file an amended return. I just responded to the IRS notice with a detailed explanation and a copy of my 1099-R. I highlighted Box 1 and Box 5 showing the identical amounts and explained these were after-tax contributions being returned. The IRS accepted my explanation and canceled the proposed adjustment about 6 weeks later. They sent a letter confirming no additional tax was due. Just make sure to respond within the deadline given on the notice, and keep copies of everything you send them.
Has anyone had success resolving this by calling the phone number on the IRS notice rather than writing? My dad has the same issue with his 401k distribution but he's not good with written explanations.
I called about a similar issue last year. If you can actually reach someone (big if), they can be helpful. I got through after 3 attempts and about 90 minutes on hold. The agent was able to see that my 1099-R boxes matched and noted my account that no additional tax was due. Still got a confirmation letter about a month later.
Your boss is committing tax fraud, plain and simple. I worked as a bookkeeper for years and this is a classic case of an employer trying to manipulate payroll taxes. Here's what's likely happening: 1. He's probably not paying the full employer portion of your FICA taxes 2. By inflating your hours, he's making it look like he's paying you more, which could help him with business expense deductions 3. The lack of pay stubs is a huge red flag - it's his way of hiding the actual numbers Document everything now. Write down all the days you worked, hours, and cash payments received. Save any text messages or emails about your schedule or pay. Request your wage and income transcripts from the IRS for the past three years. This isn't just about the 47 hours - this could have been happening your entire employment. You might have been getting shortchanged for years.
Thanks for the detailed explanation. This is getting me really worried now. If he's been doing this for the full 9 years I've worked there, could I be in trouble with the IRS too? I've always just reported what was on my W-2.
You shouldn't face penalties if you've been reporting the income shown on your W-2s. The IRS generally recognizes that employees rely on these documents for their tax filing. The primary responsibility for accurate payroll reporting falls on the employer. However, now that you're aware of the issue, you should work with a tax professional to determine if amendments are needed for recent tax years. Most tax pros recommend focusing on the last three years, as that's typically how far back the IRS looks unless fraud is suspected. The good news is that if your reported income was higher than your actual income, you might be entitled to tax refunds for overpayment once the record is corrected.
Another red flag - the $18/hr you mentioned means 450 hours should be $8,100 gross, not $6,753. Even with taxes taken out, something doesn't add up. Either your hourly rate isn't what you think it is, or there's even more funny business happening with your pay. If I were you, I'd start looking for another job ASAP while gathering evidence. This employer has been taking advantage of you for YEARS. Small business or not, family-owned or not, this is unacceptable and illegal.
Wow, I didn't even catch that math error. You're right - the numbers are even more off than I realized. I thought I was just missing out on pay for those phantom 47 hours, but it sounds like there might be issues with my actual hourly rate calculation too.
Exactly. Based on the numbers you provided, if your gross pay on your W-2 is $6,753 for 450 hours, that's only about $15/hour - not the $18 you mentioned. And if your take-home is $5,642, that's about 16.5% being withheld, which seems low for combined federal, state, and FICA taxes. I suspect your boss might be pocketing some of what should be your wages while also potentially underpaying the employer portion of taxes. This is unfortunately common in cash-heavy small businesses. Document everything moving forward - dates, times, amounts paid - and consider reporting this to your state's department of labor and the IRS whistleblower program.
Have you checked your IRS transcript online? You can request it at irs.gov and it shows all activities on your account including stimulus payments, refunds issued, etc. Might give you some clues about what's happening with your account.
Thanks for the suggestion. I tried accessing my transcript online but because I've been overseas so long, the verification system won't work for me (it needs a US phone number I've had for more than 2 years, which I don't have since moving back). I requested a mailed transcript but haven't received it yet. Seems like everything with the IRS requires workarounds when you've been an expat.
That's a common issue for expats! For the phone verification problem, you might want to use a family member's phone number temporarily if possible. Another option is to request your transcript by filing Form 4506-T instead of using the online system. For recently returned expats, sometimes the local Taxpayer Advocate Service can help navigate these authentication issues. They're separate from the regular IRS customer service and can sometimes cut through red tape when standard procedures don't work for your situation.
Did you use direct deposit for your tax refund when you filed the streamlined returns? I had issues with my stimulus because I used paper check for my refund, but my friend who used direct deposit got her stimulus automatically despite living abroad.
This is accurate - the payment method makes a huge difference. I work at a tax prep office and we've seen that international filers who used direct deposit had about 80% success rate getting stimulus automatically, while paper check people had endless problems.
Have they looked into the IRS Fresh Start Program? My brother had a significant tax debt (about $85k) after his construction business failed, and he was able to get substantial relief through this program. The Fresh Start Program has several components that might help your parents: - Increased dollar threshold for filing tax liens - Easier access to Installment Agreements - More flexible Offer in Compromise terms - Tax lien withdrawals after payment arrangements The key is providing thorough documentation of their financial situation, medical expenses, and limited ability to pay. My brother was ultimately able to settle his $85k debt for about $32k through an Offer in Compromise.
The Fresh Start Program sounds promising but remember it's not a specific program you apply for directly - it's a collection of IRS initiatives with different eligibility requirements. A $200k debt might be harder to settle than an $85k one. Still worth exploring though.
Don't forget about potential state-level tax relief programs! When I was dealing with federal and state tax issues after a business failure, I found that my state had hardship provisions that were actually more generous than the IRS options. Depending on what state your parents live in, they might qualify for: - State tax forgiveness programs - Hardship status at the state level - Special provisions for farmers/agricultural businesses - Senior tax relief programs (if they're close to retirement age) Also, check if your state has a Taxpayer Advocate Service similar to the federal one. These advocates can sometimes help navigate both systems simultaneously and coordinate relief efforts.
Ethan Davis
Don't forget about your state tax return too! You'll need to file a similar substitute form for your state taxes in most cases. Each state has their own version of the federal substitute W-2 form. Just google "[your state] substitute W-2" to find it.
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Yuki Tanaka
ā¢Good point about state taxes! I live in a state with no income tax so I totally forgot about this aspect.
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Carmen Ortiz
Make sure you also report this guy to your state's labor department! Even though the business is closed, he might still face penalties for wage theft and improper payroll practices. Those agencies can sometimes go after personal assets if the violations were bad enough. Might get some justice for all of you who worked there.
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