Doesn't filing an amended return increase your chances of getting audited though? I've always heard you should avoid amendments if possible.

That's actually a common misconception. Filing an amended return doesn't automatically increase your audit risk. The IRS understands that people need to make corrections or additions to their returns for legitimate reasons. What increases audit risk is when the amendment drastically changes your tax situation or seems inconsistent with your original return. In this case, adding education credits later is a common and understandable amendment that wouldn't raise any red flags.

In my experience, state returns are processed independently from federal returns, even if you file them together. Each state has its own processing system. That's why your state return was accepted while federal was rejected.

That middle ground approach sounds reasonable. I really don't want to blow up my family relationships, but I also can't continue like this. Do you think it would be reasonable to ask my relative to start properly employing me going forward, but not worry about the past years? Or am I legally obligated to correct previous years too?

You technically have a legal obligation to file taxes for all years where your income exceeded the filing threshold. However, from a practical standpoint, many people focus on moving forward correctly while addressing past issues gradually. The IRS generally looks more favorably on taxpayers who voluntarily come into compliance before being caught. If you decide to start filing properly from this point forward, you reduce additional non-compliance issues. Then you might consider filing amended returns for the previous three years (that's typically how far back the IRS looks unless they suspect fraud).

This is so true. My cousin worked under the table for years at a construction job. He fell off a roof and broke his back. No workers' comp, no disability, nothing. His boss completely abandoned him and he ended up on Medicaid with no income. It's been 5 years and he's still fighting for any kind of compensation while being permanently disabled. Don't wait until something happens!

Isn't doing quarterly payments a lot of extra work though? And how would someone even figure out how much to pay? I feel like making the employer fix their mistake is better than creating more work for the employee.

It's actually not too complicated. The IRS has worksheets on the 1040-ES form that help calculate the proper amount. Basically, you estimate your annual income, determine your expected tax, and divide by four. I agree the employer should fix the issue - that's definitely the right long-term solution. But quarterly payments are a good backup plan if the employer continues to drag their feet. It gives the employee protection from underpayment penalties while they fight the larger battle. Better to be proactive than end up with a huge tax bill and penalties next year.

This happened at my company too! Our entire department had the same issue because someone doing a mass upload checked "exempt" for an entire batch of employees. Took months before anyone noticed because people don't always check their paystubs carefully.

I did this last year! Had a $3400 tax bill with about $400 in penalties. Called the IRS, mentioned "First Time Penalty Abatement" specifically, and they checked my history. Since I had a clean record for the previous 3 years, they approved it on the spot. Still had to pay the tax and interest, but getting the penalties removed helped a lot. Definitely worth asking for!

Thanks for sharing your experience! That's really encouraging to hear. Did you have to fill out any specific forms or did you just request it verbally over the phone? I've been a good taxpayer for years and this is my first time owing, so hopefully they'll do the same for me. I'll definitely make sure to specifically mention "First Time Penalty Abatement" when I call. Did they give you any pushback or was it a pretty straightforward process?

OMG this!!! I made this mistake last year and got HAMMERED with the failure-to-file penalty. Ended up owing like 20% more just because I was scared to file without having the money to pay. Worst decision ever. File on time people, even if you can't pay a dime!

This is really important! I got hit with a surprise $400 tax bill my first year selling online because I didn't know about self-employment tax. Even small businesses have to pay it.