Is it really 25-30%? That seems so high! Does that include state taxes too or just federal?

That includes both federal and state, which is why it's on the higher side. Federal self-employment tax alone is 15.3% (that covers Social Security and Medicare - you pay both halves when self-employed), plus your regular income tax rate on top of that. The exact amount depends on your total income and state, but 25-30% is a safe estimate for most people. If you end up setting aside too much, hey - that's a nice little bonus for yourself after filing! Much better than scrambling to find money you've already spent when you realize you owe more than expected.

You're exactly right. Contractor income goes on Schedule C, not as W-2 wages. This is important because Schedule C is where you can deduct your business expenses to reduce your taxable income.

I haven't received any letters yet. I've claimed both kids for the past 3 years, so it's not a new situation. Their mom and I have a formal agreement about who claims which child each year, so there shouldn't be any conflict there. Should I still be checking for mail from the IRS, or would they have contacted me by now if that was the issue?

If you've claimed the same children for multiple years without issues, it's less likely to be a verification problem. However, the IRS sometimes sends letters requesting information 4-6 weeks after filing, so it could still arrive. Mail from the IRS can also sometimes look like regular mail or get lost, so it's always good to check carefully. But honestly, at this point it sounds more like normal processing delays rather than an information request problem. The IRS processing times really have been significantly longer this year for returns with dependents.

The PATH Act is still in effect, but since the original poster filed on March 5th, that wouldn't be causing their delay. The PATH Act prevents the IRS from issuing refunds before mid-February for returns claiming EITC or the Additional Child Tax Credit, but once we're past that date, it shouldn't be a factor anymore.

Thanks for clarifying! I wasn't sure if they had extended those delays or if it was still just the mid-February cutoff. Makes sense that it wouldn't affect March filers.

I use Direct Pay all the time and its SO much better. You get instant confirmation and can print a receipt. Plus you can schedule payments in advance. No more certified mail costs or wondering if your check is lost! They even send a confirmation email.

I'm definitely going to use Direct Pay next time. This stress isn't worth it. Can you set it up to make quarterly estimated payments automatically, or do you have to manually make each payment?

Oh no, I didn't include a payment voucher! I did write my SSN and "2024 taxes" on the memo line though. Will this cause problems? Is there anything I can do now that it's already mailed?

As long as you wrote your SSN and tax year on the memo line, you should be fine. The payment voucher (Form 1040-V) helps streamline processing, but it's not absolutely required if you've included identifying information on the check itself. If you're concerned, you can always call the IRS after about 21 days to confirm they received and properly applied your payment. Having your SSN on the check is the most important part, which you did right!

We actually checked their credit report last week and there's nothing on it about tax liens. Does that mean the debt might be too old to collect? They haven't had any credit cards or loans during this period either, so the report is basically empty.

That's actually a potentially good sign. The IRS stopped putting tax liens on credit reports for the most part after 2018, but if this debt was active and being pursued aggressively before then, you might have expected to see something. The empty credit report aligns with their "off the grid" lifestyle, which ironically might have worked in their favor regarding the statute of limitations. However, this is still not conclusive evidence - they need to get their tax transcripts to know for certain what debts might still be collectible.

This isn't entirely accurate. If they haven't filed returns for those years, they won't meet the "return filed at least 2 years ago" requirement. The IRS also sometimes files "Substitute for Returns" which don't count as taxpayer-filed returns for bankruptcy purposes. They would need to file proper returns first.

You're absolutely right about the return filing requirement - I should have been more clear. If your friend hasn't filed returns for those tax years, they would need to file them first and then wait two years before the taxes would be eligible for discharge in bankruptcy. The Substitute for Return point is also important. If the IRS filed these on your friend's behalf, they don't count toward making the tax dischargeable - your friend would need to file their own returns to replace these.

Is there any protection for whistleblowers in cases like this? I'm worried the owner would know exactly who reported him.

The IRS treats whistleblower reports as confidential and won't disclose your identity during their investigation. That said, if you're in a small business where you're the only one who knows certain details, the owner might figure it out anyway. That's why I suggested documenting your concerns in an email first and looking for another job before filing. This creates both a paper trail showing you tried to address it internally and gives you an exit strategy. The Form 3949-A can be filed anonymously if you want, though providing your contact info can help if they need clarification on anything.

Form SS-8 (Determination of Worker Status) can be filed by either the worker or the business, but in practice, it's usually filed by workers who believe they've been misclassified. As a manager without ownership, I wouldn't recommend you file these on behalf of others. If workers file SS-8 forms and the IRS determines they were misclassified, the business will need to pay both the employer and employee portions of FICA taxes (the employees can file Form 8919 to only pay their portion of FICA instead of self-employment tax).