Thanks for this advice. What specifically should I include in this documentation? Should I mention my suspicion that he hasn't filed taxes, or just stick to the facts about the W-4 exemption not seeming appropriate for someone at his income level?

Stick strictly to the facts and avoid speculation about his tax filing history or intentions. Your documentation should focus only on what you directly observe: that an employee making approximately $75,000 has claimed complete exemption from federal tax withholding, which appears unusual and potentially concerning from a compliance perspective. Phrase your concerns as questions rather than accusations. For example: "I noticed our operations manager has claimed exemption from all federal withholding despite having a salary of $75K. Given this income level, I want to confirm this is being handled correctly and that we're following proper procedures for verifying unusual W-4 claims.

That's a good point! The lock-in letter process shows the IRS definitely monitors these situations. My brother works in HR and said they received one for an employee who had claimed exempt for 3 years while making over 100k. The IRS specified exactly what withholding to use and they weren't allowed to change it without IRS approval.

I did this last year when my W-2 never showed up. Used my December paystub and filled out Form 4852. It worked fine but I had to file a paper return which took FOREVER to process. Got my refund like 5 months later. Also make sure your YTD (year to date) numbers are actually for the full year. My paystub reset the YTD fields in July for some weird reason so I had to add two numbers together. Check if you have an earlier paystub to compare.

Thanks for the info. I do have all my paystubs thankfully, so I can check the YTD totals. Did you just attach the 4852 form to your regular return? And did the IRS ever question any of your numbers or was it all accepted as submitted?

Quick question - if I end up filing with Form 4852 and estimated numbers, and later the actual W-2 data shows up in the IRS system with slightly different amounts, will I definitely need to amend? Or is there some threshold where small differences don't matter?

Does this also apply to Roth 401k contributions? I contribute to a Roth and I'm confused if it works differently since those are after-tax contributions.

Great question! Roth 401k contributions work differently. Since Roth contributions are made with after-tax dollars, they DO NOT reduce your Box 1 wages on your W-2. With Roth 401k, you'll notice that your Box 1, Box 3, and Box 5 amounts will be more similar (though there may still be differences due to other pre-tax deductions like health insurance). This is because Roth contributions don't give you an up-front tax break - instead, the benefit comes later when you withdraw the money tax-free in retirement.

You can still claim the Retirement Savings Contribution Credit (Saver's Credit) even though your 401k contributions already reduced your taxable income! These are two separate tax benefits. The pre-tax 401k contribution reduces your taxable income, while the Saver's Credit is an additional credit for lower to moderate income taxpayers who contribute to retirement accounts. You definitely should claim the Saver's Credit if you qualify based on your adjusted gross income - it's an additional benefit on top of the tax deferral you already received.

Thank you so much for these specific suggestions! I never thought to check my email archives but I just did a quick search and found at least 15 receipts for art supplies I'd completely forgotten about. Found records of my Procreate purchase, Clip Studio subscription, and even some drawing tablet accessories. Do you think PayPal's reports will show both my income AND my business expenses if I purchased them through PayPal? Or do I need to sort that out separately?

PayPal reports will show all your transactions, but they won't distinguish between personal and business expenses automatically. You'll need to go through and identify which purchases were for your illustration work. Your PayPal 1099 only reports your income received through PayPal, not your expenses. I'd recommend downloading your PayPal transaction history for the full year and sorting it in a spreadsheet. Look for payments to art supply stores, software companies, and other business-related vendors. Flag those as potential deductions, then verify with any email receipts you can find to confirm the purpose of each purchase.

Exactly this! I wasn't just hit with the taxes I owed but also a 25% failure-to-file penalty PLUS interest that kept growing. The IRS is actually pretty reasonable if you file on time and work with them, even if you can't pay right away. It's when you don't file that they get aggressive.

Oh wait, I do still have a savings account back in Canada with about $15,000 CAD in it. I had no idea I needed to report that! Is that going to cause problems? And does that mean I can't file early?

You definitely need to file an FBAR for that account since it exceeds $10,000. It's not part of your tax return though - it's filed separately through FinCEN (Financial Crimes Enforcement Network). Don't panic! It's just an information reporting requirement, not a tax. You can still file your regular tax return early, and the FBAR is due April 15th with an automatic extension to October 15th. Make sure you also report any interest earned on that Canadian account on your US tax return (Schedule B). The fact that you're asking about this now is good - it's much better to handle it correctly from the start rather than having to fix it later!

I used IRS Free File last year as a new resident (moved from Australia). As long as you meet the income requirements (under $73,000 for most programs), your residency status doesn't affect eligibility. They'll ask questions about when you became a resident, but the free software handles it just fine!