Thanks for mentioning this. We actually don't have kids yet, so I'm not sure if we'd qualify for the EITC. And honestly, I don't think either of us updated our W-4s after getting married - I didn't even know that was a thing we needed to do. Would fixing that help us for this year's taxes or just for next year?

You can still qualify for EITC without children, though the amount is smaller. It depends on your income level - for 2023 taxes, married couples filing jointly with no qualifying children can get EITC if their income is below about $24,210. Regarding the W-4 adjustments, unfortunately that would only help you for future tax years, not for the return you've already filed. But you should definitely both submit new W-4 forms to your employers right away to prevent this problem next year. When both spouses work, you often need to withhold at a higher rate than single filers to account for your combined income pushing you into higher tax brackets. The IRS has a Tax Withholding Estimator tool on their website that can help you fill out your W-4 correctly.

This is generally bad advice for most people. MFS rarely results in tax savings and actually disqualifies you from several tax benefits like education credits, child care credits, and earned income credit. It's usually only beneficial in very specific situations like when one spouse has income-based student loan payments or massive medical expenses.

That's interesting! So are you saying the IRS doesn't strictly apply the $1,470 monthly limit that the SSA uses? My daughter has Down syndrome and occasionally works more hours for special events, but we still provide over 90% of her support.

That's right - while the IRS and SSA both use the term "substantial gainful activity," the IRS focuses more on the overall support situation rather than rigidly applying the monthly earnings limit. If you're providing 90% of your daughter's support, you're well within the requirements to claim her as a dependent. The key test for the IRS is whether you provide more than half of your dependent's total support for the year. The SGA question becomes more relevant if they're earning enough that they might be supporting themselves. Even with occasional higher earnings for special events, it sounds like your situation clearly meets the support test.

There are different SGA thresholds for blind individuals versus non-blind individuals with disabilities. In 2023, the threshold was $2,460 per month for blind individuals and $1,470 for non-blind. Doesn't matter what type of disability otherwise - physical, cognitive, etc all fall under the same threshold as long as they're not blind.

This is great advice about documentation. I hadn't thought about taking photos of him working as evidence. Is there a specific format you'd recommend for the work log? Like a spreadsheet or something more formal? And for paying him, should I set up a separate bank account in his name?

I used a simple Google spreadsheet with columns for date, start time, end time, total hours, hourly rate, total pay, and a detailed description of tasks. I had my daughter fill it out daily when she worked and I'd review it weekly. Nothing fancy, but consistent documentation is what matters. Definitely set up a separate bank account in his name. I opened a custodial account for my daughter and had her paychecks direct deposited there. This creates a clear paper trail showing the money was actually paid to her. Having a separate account also makes it easier to track when money moves from his earnings to the 529 contribution. The account statements become additional documentation of the legitimate business relationship.

But doesn't the parent/business owner still have to pay the employer portion of FICA even if the kid is exempt?

No, that's the beauty of this exemption. When a child under 18 works for a parent's sole proprietorship, both the employer and employee portions of FICA taxes are exempt. So neither you nor your child pays the 15.3% FICA tax. The exemption applies to both halves of the tax. This only works for sole proprietorships and partnerships where both partners are the child's parents. If your business is an LLC taxed as a corporation or an S-Corp, this specific exemption doesn't apply and you'd have to pay both portions of FICA like any other employee.

Thanks for the suggestion. It wasn't identity theft - my dad knowingly let my sister use the card to help her out, so we can't go that route. He's on SSDI, not SSI, so that's somewhat reassuring. I'm still concerned about how this might impact his tax situation though, especially since he's normally not required to file due to low income. Does the 1099-C automatically mean he must file now, even with SSDI being his only income source?

If your dad is only receiving SSDI and is single, he generally wouldn't need to file a tax return unless his total income exceeds the standard deduction (which is $14,600 for 2024 if he's over 65). The 1099-C amount would count toward that threshold. So if his SSDI benefits plus the $8,200 canceled debt amount is less than the standard deduction, he still wouldn't be required to file. However, if it puts him over that threshold, then yes, he would need to file - but should definitely look into the insolvency exception in that case.

Form 8275 seems risky to me. I've heard it's like waving a red flag at the IRS saying "look at me!" Wouldn't it be better to just file Form 982 and only provide additional explanation if they actually question it?

Thanks for pointing this out! My income was definitely below those limits in 2021 (around $65k) so I was eligible for the full contribution. I think I might have been confused about how much I actually contributed - just double checked and it was exactly $6k, not $8k like I initially wrote. My memory isn't what it used to be lol. If I'm understanding everyone correctly, since the Roth contribution doesn't affect my tax liability and my income was too high for the Saver's Credit but below the Roth income limits, there's really no benefit to amending my return. Does that sound right?

That's exactly right. If your contribution was $6k (within the limit), your income was below the Roth IRA income thresholds but above the Saver's Credit limit, there's really no reason to amend your return. The IRS already has the information from the Form 5498 that your financial institution filed, and since Roth contributions don't impact your tax liability, you're good to go. One less thing to worry about!

Can you explain what a "backdoor Roth conversion" is? I keep hearing about it but don't really understand the concept or why it matters for record keeping.