This is really helpful info I hadn't considered. The check I received was for exactly the excess amount ($1,350) minus the 10% withholding. Does that mean they didn't include any earnings, or would the earnings have been calculated into that amount? Should I specifically ask about the earnings portion?

Based on the amount you received, it sounds like they may not have calculated earnings separately, which is actually a mistake. Even a small excess contribution will generate some earnings while it was in the account. You should definitely call your 401k provider and specifically ask about the earnings on your excess contribution. Ask them how those earnings were calculated and how they'll be reported on your 1099-R. The correct procedure is to distribute both the excess contribution and its earnings. If they haven't properly accounted for the earnings, you might need to request an additional distribution specifically for those earnings. The provider should be able to calculate what those earnings were for the period the excess contribution was in your account.

That number has been impossible to get through on. I tried for weeks and never spoke to anyone. The wait times are insane or they just tell you to call back later.

What if they DID rent it out while traveling though? Doesn't that change things?

Good question. If you rented the property while traveling, it gets more complicated but doesn't automatically disqualify you. The IRS uses a facts-and-circumstances test. If you rented it out occasionally (like on Airbnb) when you weren't using it, that's generally not a problem. If you converted it to a full-time rental property, you'll need to calculate the portion of ownership that qualified as primary residence vs. rental property. You might still get a partial exclusion based on the percentage of time it was your primary residence during the 5-year period before sale.

I was audited on this exact issue last year. The key was providing documentation proving the house remained my "tax home." I submitted copies of my voter registration, driver's license, bank statements showing the address, utility bills in my name (even with minimal usage), and property tax statements. The IRS accepted my explanation that my travels were temporary absences and I had always intended to return to my home. I didn't lose my exclusion. Document everything!

Thanks for sharing your experience! That's really reassuring. I'll definitely gather all those documents. Did you have to provide any evidence about your travels too, or just focus on proving the house was still your main residence?

If it's properly registered as a CCPC, you might qualify for the Small Business Investment Tax Credit, but only if the corporation issued eligible shares to you and meets all the other criteria. Did you receive actual shares in the company or just an agreement promising a percentage of profits?

Thanks for this tip! Do I need to specifically ask for a "first-time penalty abatement" using those exact words, or can I just explain the situation? Also, since I'm now disputing part of the 2021 amount with the collection agency, should I wait for that to resolve before addressing the 2022 taxes?

You don't need to use those exact words - just explain that this was your first time dealing with this township's taxes, you weren't aware of the requirement after moving, and you're now trying to get into compliance. Ask if they have any programs for waiving penalties for first-time issues or good-faith mistakes. Being polite and showing that you're trying to fix the problem goes a long way. I wouldn't wait on addressing the 2022 taxes. Handle them separately from your 2021 dispute. The sooner you file and pay your 2022 taxes, the less interest will accrue, and it demonstrates to the township that you're being proactive about compliance going forward. This good-faith effort might even help your case with the 2021 dispute.

Adding to this - some states like PA have really complicated local tax systems where the credits aren't automatic. You have to specifically request them and provide proof of payment to the other locality. Don't assume the townships talk to each other because they definitely don't!

That's absolutely right. The reciprocal agreements exist in many places, but you definitely have to claim them yourself. The townships don't communicate with each other about who paid what. Be prepared to provide documentation showing exactly how much local tax you paid to your previous township during the part of the year you lived there. W-2s, paystubs, and your state tax return can all help establish this. If your employer was withholding for the wrong township entirely (which happens a lot), you might need to request a refund from the incorrect township while paying the correct one.

Thanks for that perspective - makes me feel a bit better about the situation. We actually aren't maxing our 401ks completely. Do you think that would make a significant difference in our situation? And how complicated are quarterly estimated payments to set up?

Maxing out your 401ks would definitely help! Each of you can contribute up to $23,000 for 2025 (assuming you're under 50), which would reduce your taxable income by $46,000 total. At your tax bracket, that could save you roughly $15,000-18,000 in federal taxes. Quarterly estimated payments aren't complicated at all. You can set them up online through the IRS Direct Pay system or through EFTPS. It's basically just making four payments throughout the year based on what you expect to owe. The IRS Form 1040-ES has a worksheet to help you calculate the right amount.

This! I live in California and my state tax bill was almost as painful as federal. Definitely check both withholdings when you update your W-4.

Oh man, I didn't even think about state taxes yet. We're in Massachusetts which isn't quite California rates but still significant. I'll definitely look at both when redoing our withholdings. Thanks for the heads up!