No other income sources - just my regular W-2 job. No investments that generate significant income, no side hustles. That's why the high withholding seems odd to me. I don't mind getting some money back at tax time, but $4k feels excessive when I could be using that money throughout the year.

In that case, you're definitely overwithholding. With just W-2 income, you should be able to get pretty close to breaking even. The suggestions above about adjusting your W-4 are solid. One more tip - after you submit a new W-4, check your next few paychecks to make sure the changes took effect correctly. Sometimes payroll departments make mistakes implementing withholding changes. Also, if you don't want to mess with the complicated calculations, a simple approach is to just use Line 4(c) of the W-4 to specify an exact dollar amount LESS to withhold per pay period. If you're getting $4k back and have 24 pay periods, you could just put -$167 on that line to reduce each paycheck's withholding by that amount. Just make sure your payroll system allows negative numbers there.

I used it last month and it's slightly better than before but still pretty confusing. You need to have your most recent paystub AND last year's tax return handy to use it effectively. The biggest issue I had was that it doesn't handle irregular income well. I got a bonus early in the year and it threw off all the calculations. Ended up just guessing at how to adjust my W-4.

3 Would the Foreign Earned Income Exclusion even apply to someone who has a green card? I thought you had to be physically present in the foreign country to claim that, but don't green card holders need to maintain their primary residence in the US?

14 Yes, green card holders can claim the Foreign Earned Income Exclusion if they meet either the physical presence test (physically present in a foreign country for at least 330 days in a 12-month period) or the bona fide residence test (foreign resident for an uninterrupted period that includes an entire tax year). Green card holders do need to maintain their intent to live permanently in the US, but they are allowed to work and live abroad temporarily. However, staying outside the US for too long (typically more than a year) without a reentry permit can potentially lead to abandonment of permanent resident status. So it's a balance - they can work abroad and potentially claim the exclusion while maintaining their green card, but they need to be careful about how long they stay away from the US.

18 Would this apply even if someone's net worth is relatively low? I thought the exit tax was only for really wealthy people giving up citizenship. Are the rules different for green card holders?

Thanks for suggesting this! I hadn't even thought about tax credits. Unfortunately, I don't think I can claim him as a dependent since he made about $55,000 before starting school this year. But I'll definitely look into all the education-related tax benefits once we're married next year. It sounds like from everyone's advice, the best approach is to pay the school directly for the remaining payments. For the money I've already given him directly, I'll just need to file the gift tax form but won't actually owe any taxes.

PA here - PSLF is definitely worth looking into, but keep in mind it requires 10 years of payments while working at qualifying employers. The employer has to be a government org or certain non-profits. Also, with the high salaries many PAs command (even at non-profits), sometimes it's financially better to just pay off the loans aggressively.

Whoa really? I had no idea there were tax credits available! Is that something I claim on my business tax return? And do you know roughly how much the credit might be? We definitely have under 50 employees (just 3 actually).

Yes, you claim it on your business tax return using Form 8881 (Credit for Small Employer Pension Plan Startup Costs). The credit was expanded to cover 100% of qualified startup costs up to $5,000 for the first three years of the plan. Even better, there's a new additional credit specifically for employer contributions for your employees. It can be up to $1,000 per employee depending on how much you contribute to their accounts. This phases down over 5 years. Since you mention having 3 employees, this could be quite valuable for your business if you're making employer contributions to their 401k accounts.

This is solid advice. I'd add that you should also keep copies of all the notices and disclosures you provide to employees, with dates of when they were distributed. The DOL can audit for compliance with those requirements separately from the IRS tax compliance stuff.

Wait, so are you saying that by asking them to correct it to Box 2 royalties, I might actually end up paying MORE in taxes? I hadn't even considered the self-employment tax angle.

That's possible, yes. Royalty income that's part of your regular business activity would typically be subject to self-employment tax, while Box 3 "Other Income" generally isn't. However, you should still report it correctly regardless of tax implications - misclassifying income to pay less tax could cause problems later. Even if it means paying more now, correctly classifying the income as royalties establishes the nature of your business, which can be beneficial for other business deductions and for consistent treatment in future years. If you're concerned about the tax difference, you might want to consult with a tax professional who can look at your complete situation.

What happened in the end? Did you have to pay the amount they said or did they accept your explanation?

They eventually accepted our explanation without us owing anything additional. We sent a copy of our contract showing the nature of the income and referenced the relevant IRS publications for how that type of income should be reported. The most annoying part was that it took about 3 months to get resolved, and we received automated follow-up notices during that time that made it seem like we hadn't responded at all. I had to call multiple times to confirm they had our response and it was still being processed. Definitely document everything and follow up persistently!