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Carryback claims are actually a good thing usually! The IRS is probably giving you money back from your 2020 taxes because of pandemic relief provisions. During COVID they changed a bunch of rules retroactively and they're STILL processing all those changes. The delay is totally normal - the IRS has been massively backed up since COVID. My mom just got a similar notice last month about her 2019 taxes and ended up getting an extra $1200 refund she never expected.
Thank you all for the explanations! I called the number on the notice today (took forever to get through) and you were right - it was actually GOOD news. They found I was eligible for some additional pandemic relief I didn't claim and they're sending me $790! Apparently there was some provision about carrying losses back that I qualified for but didn't know about. The agent explained that they're still processing these adjustments from the CARES Act and I just happened to be in this batch. I was so worried they were coming after me for something, but it was actually them giving me money back. What a relief!
That's great news! The IRS isn't always the bad guy (though their communication could definitely use some work). Glad it worked out in your favor!
Check if it's a legitimate notice first - lots of IRS scams going around. Real IRS notices have a notice number (usually CP followed by numbers) in the top right corner and will NEVER ask for gift cards, cryptocurrency or personal info over the phone.
For your situation, I'd recommend using the 100% prior year tax liability safe harbor. Since you only owed $1,400 for 2023, you could simply divide that by 4 and pay $350 per quarter for 2024. That would guarantee no penalties even if your income jumps to $40k. If you want to be more precise, estimate your 2024 tax liability (including self-employment tax which is about 15.3% of your net profit) and divide by 4. Remember that quarterly due dates are April 15, June 15, September 15, and January 15 (2025). You can pay online through the IRS Direct Pay system which is free and pretty straightforward.
Isn't the June payment actually due on June 17th this year? I thought I saw something about that online. And do I calculate the self-employment tax separately or is there a combined form or calculator?
You're right about the June deadline this year - it's June 17, 2024 (the 15th falls on a weekend). Good catch! For calculating your payments, the self-employment tax is actually part of the total tax calculation on the 1040-ES worksheet. You don't need to calculate it separately for your quarterly payments. The worksheet walks you through calculating both your income tax and self-employment tax, then combines them to determine your total estimated tax payments. This ensures you're covering both your income tax and SE tax obligations with your quarterly payments.
Quick tip that saved me a ton of stress: set up an IRS online account if you haven't already. It lets you see your payment history, make payments, and set up payment plans. Makes the whole quarterly tax thing so much easier to manage. I had the same issue last year - started contracting midyear and was confused about quarterly requirements. I just divided my expected annual tax by 4 and paid each quarter. As long as you're making a good faith effort, the IRS is fairly reasonable.
One thing nobody's mentioned yet - if you file as Injured Spouse, it can take longer to get your refund. When I filed Injured Spouse last year because my husband had defaulted student loans, our refund took about 11 weeks instead of the usual 3 weeks. Just something to keep in mind if you're counting on getting that money quickly.
Do you know if you can e-file with the injured spouse form or do you have to mail it in? I've heard both things from different people.
You can definitely e-file with Form 8379 (Injured Spouse) included! Most tax software supports this now. I've done it through TurboTax and H&R Block in different years. If you file the injured spouse form with your original tax return, it processes much faster than if you submit it separately after filing. That's probably why you've heard conflicting information - submitting it separately after filing often requires mailing it in and takes much longer.
Something else to consider - if your wife truly has zero income, filing jointly with the injured spouse form is almost always better than filing separately. When my wife wasn't working last year, I ran the numbers both ways and filing separately would have cost us about $4,200 more in taxes!
As someone who's worked in payroll compliance for 15 years, I'd recommend documenting everything immediately. Send an email to both your manager and the payroll company expressing your concerns about the W-4 exemption claim at that salary level. Request written clarification on company policy regarding potentially invalid W-4s. This creates a paper trail showing you raised concerns appropriately. If the operations manager pushes back, suggest having your tax professional or payroll provider give a second opinion on whether the exemption claim appears valid. The IRS specifically states that someone making $75K almost certainly has tax liability unless they have massive deductions.
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.
Has anyone looked at the "lock-in letter" process? My company went through this last year with an employee who kept claiming excessive exemptions. Eventually the IRS sent us a lock-in letter that specified exactly what withholding rate to use regardless of what the employee put on their W-4. Might be worth checking if your company has already received something like this for this employee. The IRS sends these when they notice patterns of underwithholding. They basically override whatever is on the W-4.
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.
Omar Hassan
17 Have you considered using a tax preparation service like H&R Block or Jackson Hewitt? They're typically less expensive than independent CPAs and often have small business specialists. They also offer year-round support, not just during tax season. I used H&R Block's small business services when I started my etsy shop last year and paid around $350 total for the year, including quarterly estimates and my annual return. Much more affordable than the quotes I got from private CPAs.
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Omar Hassan
ā¢1 I was thinking about that! Did they help with identifying deductions throughout the year or was it more just for the filing part? And did you work with the same person each time or get random preparers?
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Omar Hassan
ā¢17 They absolutely helped with deductions throughout the year. I had an initial consultation where they set me up with a tracking system for business expenses and explained what to save receipts for. You can request the same preparer each time, which I definitely recommend. I worked with the same woman for all my quarterly stuff and my annual return, which was great because she remembered my business details and could spot trends in my expenses. Just make sure to ask for their small business specialist specifically - the regular preparers might not have the same level of expertise with self-employment taxes.
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Omar Hassan
3 I recently found out that some professional organizations and chambers of commerce offer discounted tax services for members. I joined my local chamber for $175/year and got access to a CPA who charges members 30% less than his regular rate. Might be worth checking if your industry has a professional association with similar benefits.
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Omar Hassan
ā¢13 That's actually brilliant. Do they offer other business services too? Might be worth joining for multiple benefits.
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