That makes so much more sense! I was worried my entire income would get hit with the higher rate. What about the freelance income though? Is that taxed differently than my regular job income?

Your freelance income is subject to both income tax (at the same progressive rates as your W-2 income) AND self-employment tax, which is an additional 15.3% to cover Social Security and Medicare. This is because when you're self-employed, you're paying both the employer and employee portions of these taxes. You can deduct business expenses from your freelance income though, which helps reduce both taxes. Things like supplies, software subscriptions, and potentially a portion of your home office if it's used exclusively for the freelance work. Just keep good records of everything!

This is correct! I work as a tax preparer and see this mistake ALL THE TIME. The home office deduction is only for self-employed people (Schedule C filers) or certain statutory employees. Regular W-2 employees can't take this deduction anymore after the Tax Cuts and Jobs Act.

Thanks for this straightforward advice! Do you have to attach any special forms or documentation when you write "NRA" for your spouse? I'm worried about my return getting flagged for review if I just write that in.

No special forms needed when filing separately with an NRA spouse! The IRS is completely familiar with this situation. Just write "NRA" in the space for the SSN and proceed normally. I've been doing it for 7 years and never had a return flagged or questioned. The only time you need additional forms is if you're claiming your spouse as a dependent (which you generally can't), filing jointly (which requires an ITIN and a special election), or if your spouse had US income. For a simple MFS with an NRA spouse with no US ties, it's very straightforward.

This is really important advice! My friend got stuck with a huge tax bill because her estranged husband in Germany had unreported income when they filed jointly. The IRS came after her even though she had no idea about his finances!

Agree! It would be political suicide to let middle class families see their taxes go up right after an election. My money is on them extending at least some provisions, probably at the last minute in December 2025 like they always do. Makes planning almost impossible though.

Omg thank you for bringing this up. My parents did their estate planning after 2018 and I don't think they've considered this. Going to make sure they talk to their attorney.

You're welcome! It's definitely something that caught many people by surprise. The current estate planning strategies that work with the higher exemption amounts may need significant revision when the exemption is cut roughly in half. For people in that potential danger zone (estates valued between $6-13 million), it might be worth looking into making larger gifts before the end of 2025 to lock in the higher exemption amount. The IRS has already issued regulations confirming they won't try to "claw back" the benefit of the higher exemption for gifts made while it was in effect, even after it expires. It's one of the few areas where proactive planning before the expiration can make a real difference.

Is there an easy way to figure out the state difference? I'm in New York and now I'm wondering if I've been leaving money on the table for years.

For New York specifically, the differences can be significant because NY has a pretty progressive tax rate structure. The easiest way is to run the calculations both ways using NY's tax tables, which you can find on the NY Department of Taxation website. The key thing to check is whether you and your spouse would fall into different tax brackets individually versus where your combined income lands. Also, NY has some credits that follow federal rules about filing status, so if you'd lose certain credits federally by filing separately, you might lose the corresponding NY credits too. I usually just run a quick calculation both ways in our state's online tax calculator to see the difference. Takes about 15 minutes but has saved us hundreds some years.

The Tax Cuts and Jobs Act significantly reduced the impact of AMT for many taxpayers by increasing the exemption amounts and phase-out thresholds. But it's still something to consider for higher incomes, especially if you have lots of certain types of deductions or exercise stock options. I got caught by this too, but in reverse - filing separately actually triggered AMT for us when jointly didn't. It's definitely worth running the numbers both ways if you're near those thresholds.

Can you walk me through exactly where in FreeTaxUSA I should be entering this? I keep getting stuck at the part where it asks if I want to file Schedule C. Should I be saying no to that?

You should definitely say NO to filing Schedule C since you're not claiming to be self-employed. In FreeTaxUSA, go to the Income section, then select "Wages paid by an employer who did not withhold Social Security and Medicare taxes" (not the 1099-NEC section). When you get to the screen asking for details, enter your income amount from the 1099-NEC, select reason code G, and enter the employer information exactly as it appears on your 1099. The software will calculate only the employee portion of FICA taxes rather than self-employment tax.

H&R block was terrible when I tried to file with Form 8919 last year. They kept adding the income back as self employment even after I removed it. Ended up having to paper file.