Interesting approach! Do you know roughly what percentage of your self-employment tax gets covered by her additional withholding? And have you ever had issues with underpayment penalties this way?

We cover about 60% of my self-employment tax through her withholding. The remaining 40% I pay through quarterly payments, but they're much smaller and more manageable this way. We've never had underpayment penalties because the combination keeps us well above the safe harbor threshold (100% of last year's tax or 90% of current year). The key was finding the right balance - we started too high with her withholding and got a huge refund the first year, so we've adjusted downward since then.

This is actually really bad advice. If she claims both kids on her W-4 and the husband continues making the same quarterly payments, they'll likely be significantly underpaying their taxes. The quarterly payments were calibrated for just his income, not their combined income minus two child credits.

Do you know if FreeTaxUSA handles student loan interest deductions well? I heard some of the free services don't guide you through all the deductions you might be eligible for.

FreeTaxUSA definitely handles student loan interest deductions well. They have a specific section for education expenses and loan interest where you can enter your 1098-E information. The software will walk you through exactly what qualifies and how much you can deduct. Most tax software, including FreeTaxUSA, is actually pretty good about guiding you through common deductions. Where the paid versions sometimes have an advantage is with more complex situations like self-employment, rental properties, or unusual investments. For standard deductions like student loan interest, education credits, and basic itemized deductions, the free version works great.

I actually did this last year! I ran my info through both FreeTaxUSA and TurboTax just to compare. The federal refund amount came out exactly the same on both. The only difference was that TurboTax wanted to charge me $89 for exactly the same result I got for free with FreeTaxUSA.

Does the same apply for H&R Block software? I have a similar situation with U.S. Government Securities but I'm using H&R Block instead of TurboTax.

Yes, this applies to H&R Block software too. The process is similar - you'll need to enter the U.S. Government Securities income information at the federal level first, and then when you get to the filing stage, you should see options for which amended returns you want to file. H&R Block's interface is slightly different, but the concept is the same since all tax software starts with federal information and flows to state. Look for a filing selection page toward the end of the amendment process where you can choose to only file the state amendment.

In my experience, if you file the amended state return promptly after discovering the error, many states will waive penalties but might still charge interest from the original due date. I amended my NY state return for U.S. Government Securities income I missed, and they charged interest but waived the penalty since I voluntarily corrected it.

Thanks for the insight from the payroll side! I looked more closely at my stub and you're right - my health insurance premium also went up about 3.5% which I didn't notice at first. When you add that to the tax changes, it definitely explains the difference I'm seeing in my take-home pay. Is there anything I can do with my W-4 to offset some of these increases? Or is this just the reality for 2024?

You can definitely adjust your W-4 to offset some of these increases. The simplest approach is to increase your withholding allowances or specify an additional dollar amount to reduce withholding on Line 4(b) of the W-4 form. Just be careful not to underwithhold too much - you generally want to aim for owing less than $1,000 at tax time to avoid potential penalties. The IRS has a Tax Withholding Estimator on their website that can help you determine the right adjustment based on your specific situation. Some payroll systems also have withholding calculators built in that you can access through your employee portal.

The Social Security wage base increases are typically permanent and will likely continue to rise annually. The Federal withholding changes depend on Congress - some tax provisions from the 2017 tax law are scheduled to expire after 2025, which could mean bigger changes coming.

Do scholarships count as taxable income? My financial aid letter called everything "scholarships" but some were grants I think.

Scholarships and grants used for qualified education expenses (tuition, fees, books, required supplies) are generally tax-free. However, if you receive scholarships or grants that exceed your qualified education expenses, or if they're used for room, board, or optional expenses, then that portion becomes taxable income. Your 1098-T should break down what was paid for tuition and qualified expenses, but you'll need to determine yourself if any scholarship/grant money went toward non-qualified expenses like housing or meals. FreeTaxUSA will walk you through this calculation when you enter your education information.

I had to switch to the Lifetime Learning Credit last year after using AOTC for 4 years. The Lifetime Learning Credit is definitely not as generous - only 20% of up to $10k in expenses (max $2,000) and it's non-refundable. But it's better than nothing after your AOTC eligibility runs out.