What exactly is a Spousal IRA? Is that different from a regular Traditional IRA? We do file jointly, so this sounds like it might be relevant for us. Also, she's not diplomatic staff - she works in their cultural affairs office, so I think she's considered regular administrative staff. Would that still qualify for any special tax treatment?

A Spousal IRA isn't actually a special type of account - it's just a regular Traditional or Roth IRA that a working spouse can contribute to on behalf of a non-working spouse. In your case, since your wife is working, it wouldn't apply directly. I misunderstood your situation initially. For administrative staff at foreign embassies, the tax treatment depends on the specific tax treaty with that country. Generally, administrative staff don't get the full tax exemptions that diplomatic staff receive, but there might still be special provisions. Some administrative staff are exempt from FICA taxes but still pay federal income tax. The pay stubs should indicate if taxes are being withheld.

That's actually terrible advice for retirement planning. Tax-advantaged accounts like IRAs are almost always better than taxable accounts for long-term retirement savings. The tax-free growth over decades makes a massive difference in the final balance.

I wasn't suggesting to completely ignore retirement accounts - just pointing out an alternative since they already have some retirement savings and might want flexibility. You're right that the tax-advantaged growth in IRAs is valuable, but taxable accounts have advantages too - no early withdrawal penalties, no RMDs, and potentially favorable capital gains rates. The ideal approach is usually a mix of both tax-advantaged and taxable accounts to give yourself options in retirement. Plus, with the contribution limits on IRAs being relatively low, many people need to use both types of accounts to save adequately for retirement anyway.

Does the CP2000 notice count as an audit? I'm always terrified of anything that might trigger the IRS to look more deeply at my returns.

No, a CP2000 notice isn't technically an audit. It's classified as an "automated adjustment" where their computer systems have detected a mismatch between income reported to them versus what's on your return. It doesn't involve the detailed examination of your entire tax situation that a true audit would include. That said, how you respond to a CP2000 could potentially lead to further review if there are significant issues or discrepancies in your explanation.

is there a benefit to e-filing the amendment vs mailing it in? I thought amendments had to be on paper

That's a good idea, but since I'm getting a promotion with a significant salary increase, I'm not sure my past paychecks would give an accurate picture. The tax brackets might change with the new income level, right?

You're right about the tax brackets potentially changing with a higher salary. In that case, you could use your current paystub as a starting point and then adjust the calculations. For example, if you're currently making $60,000 and moving to $78,500, you could calculate the percentage increase (about 30.8%) and then apply different increase rates to different deduction types. Federal taxes might increase at a higher rate due to progressive brackets, while something like disability insurance might simply scale proportionally with income.

This is so important! My friend thought her raise would actually make her take home less because she didn't understand marginal tax brackets. She almost turned down a promotion because of this misconception!

Omg thank you for mentioning this! I totally forgot about those other taxes. Do you know if there's a way to calculate exactly what I'll take home after ALL the withholding? I'm trying to plan what I can spend from this bonus.

You can use an online paycheck calculator like the one on ADP or Paycheckcity. Just enter your bonus as a separate supplemental payment, add your state, and it will calculate all the withholdings including federal, state, Social Security, and Medicare. Most employers will withhold around 30-35% total when you factor in everything, but it varies by state. If you're in a state with no income tax like Texas or Florida, it will be less than if you're in a high-tax state like California or New York.

This is the way! If your 401k is already set up as a percentage of your pay, the contribution should happen automatically with your bonus too. Just check with HR to confirm.

20 Agreed! But what's the bare minimum percentage you should set aside from each check to cover taxes? I've heard everything from 20% to 40% and I'm confused.