So exactly how far back can states go to collect back taxes? Is there like a statute of limitations or can they just go back forever if they catch someone who hasn't been filing?

Most states have a statute of limitations of 3-7 years for ordinary tax assessment, but here's the catch: those time limits typically only start AFTER a return is filed. If someone never files at all, many states consider that an open window with no time limit. I've personally seen cases where the state went back 10+ years for non-filers. And the really painful part is that penalties and interest compound over time, so a relatively small original tax liability can grow into an enormous debt. I've seen $5,000 in original tax liability balloon to over $20,000 with penalties and interest when someone didn't file for several years.

Really?? They found you just from your Etsy shop location? That's kind of terrifying. I've been selling on Etsy for like 2 years and haven't filed anything with my state. Do you think I should get an accountant or just start filing now going forward?

Does this mean any child (regardless of age) can be a qualifying person for QSS as long as they live with you and you provide more than half their support? What about the gross income test that applies to dependents?

That's exactly right - for QSS purposes, a qualifying child can be any age as long as they're your child (including stepchild or adopted child), they lived with you for more than half the year, and you provided more than half their support. The gross income test that applies to dependents doesn't apply to the qualifying person test for QSS status. This is a key difference that causes confusion. Your adult child can have unlimited income and still be your qualifying person for QSS purposes, even if you can't claim them as a dependent because of their income.

Absolutely! File Form 1040-X to amend your previous return. You generally have 3 years from the date you filed your original return (or 2 years from when you paid the tax, whichever is later) to file an amendment. Definitely worth doing for $4K!

Thanks for this advice. I have been keeping emails, but I hadn't thought to document the phone calls with this level of detail. Do I need to submit this documentation with my tax return or just keep it in case of questions later?

You don't need to submit the documentation with your tax return unless you're filing by mail and want to include it as supporting evidence. But definitely keep it in your records for at least 3 years (the standard IRS lookback period for audits). If the IRS does question the discrepancy between your Form 4852 and what your employer reported, having this documentation ready shows you weren't trying to misrepresent anything - you were actively trying to get the correct information but had to file with what you knew was accurate. It demonstrates good faith on your part.

That's terrible advice. You should NEVER file knowingly incorrect tax information, regardless of the amount. That's literally asking for problems down the road.

I wasn't suggesting filing incorrect information! I was suggesting evaluating whether the correction is material enough to warrant the extra steps. For example, if box 12 is off by $5 due to a rounding error, that's very different than if it's off by $5,000. The IRS itself has de minimis rules for certain reporting requirements. I'm not saying to ignore significant errors, just to consider whether the particular error materially affects tax liability before going through the Form 4852 process.

Do you ever help families set up the payroll stuff? My nanny keeps saying she wants to be "on the books" but neither of us know where to start.

I don't personally set it up for families, but I do point them toward resources. Many use household payroll services like HomePay, SurePayroll, or Poppins Payroll that specialize in nanny taxes. They handle all the paperwork, tax withholding, and filings for around $40-60/month. I also recommend they check the IRS Publication 926 (Household Employer's Tax Guide) which explains everything. Most families find that once they have a system set up, it's pretty easy to maintain and gives everyone peace of mind.

This whole thing sounds so complicated and expensive. Is it really worth doing all this for a part-time nanny? How much extra does it end up costing?

That's a great point about the tax software! Which software are you using that gives you trouble with blank 199A sections? I'm using ProSeries right now.

I've had this issue with both UltraTax and Lacerte in previous years. ProSeries is actually a bit better about this particular situation, but you might still get a "soft" warning that you can override. For ProSeries specifically, you can usually bypass these warnings without entering zeros, but I've found that checking the box that says "QBI Not Applicable" in the 199A section often prevents the warnings altogether. The software is getting better each year at recognizing these situations, but it's still not perfect.

This is correct! I just checked the draft instructions for 2023 and they maintain the same guidance. There's a checkbox specifically for "all partners are C-Corps" that needs to be marked, but then you can skip the rest of the 199A calculations.