I actually just went through this same situation a few months ago! After dealing with the confusion and getting conflicting advice from different sources, I ended up calling the IRS directly (yes, it took forever on hold) and speaking with an agent who clarified this for me. The agent explained that your sole proprietorship began when you first started earning income as an independent contractor - so that would be 12 years ago in your case. Even though you were working through tutoring companies, you were still operating as a sole proprietor because you weren't their employee. The fact that you later expanded to direct clients doesn't change when your business actually started. What really helped me was looking at my old tax returns. If you were filing Schedule C or reporting self-employment income 12 years ago, that's your proof that you were already operating as a sole proprietor. If you can't remember the exact date, just use January 1st of that year - the IRS mainly cares about getting the year right. I used my original contractor start date from 8 years ago (even though I didn't start direct clients until 3 years ago) and got my EIN approved immediately. Been using it for my solo 401k ever since with no issues. You're going to love having that retirement account set up - better late than never is right!

I went through this exact same situation about 6 months ago when setting up my solo 401k! The confusion around the start date is so real, but here's what I learned after doing a ton of research and consulting with my CPA: You should definitely use the date from 12 years ago when you first started as an independent contractor. The IRS considers your sole proprietorship to have begun the moment you started earning self-employment income, even if it was through tutoring companies. The key factor is that you weren't an employee - you were an independent contractor, which means you were already operating as a sole proprietor from a tax perspective. When you started taking direct clients 4 years ago, you didn't create a new business - you just expanded your existing sole proprietorship. It's the same business entity that's been running for 12 years, just with different client acquisition methods. If you can't remember the exact date from 12 years ago (and who could?), just use January 1st of that year. The IRS really only cares about getting the year approximately right. I did this same thing and my EIN was approved instantly online. Trust me, getting that solo 401k set up is going to feel amazing! The contribution limits are so much better than regular IRAs. I'm kicking myself for waiting as long as I did to get organized with this stuff, but like you said - better late than never!

This thread has been absolutely incredible! As a newcomer to this community, I'm blown away by how thoroughly everyone has explained this confusing aspect of payroll taxation. I've been dealing with the exact same issue - wondering why my "pre-tax" pension contributions weren't reducing my Social Security and Medicare taxes. The distinction between regular pre-tax deductions and Section 125 cafeteria plan deductions is something I never learned anywhere else. It's frustrating that the term "pre-tax" is so misleading when it really means "pre-income-tax-only" for most retirement contributions. But understanding that health insurance premiums, HSA contributions through payroll, and FSA contributions actually reduce ALL taxes (including FICA) is going to completely change how I approach my benefits elections. I love how this community not only answered the original question but provided practical strategies and even specific tools to help optimize tax situations. The perspective about FICA taxes building future Social Security benefits is also a great way to reframe what initially feels like paying more than you should. Thanks to everyone who shared their expertise and experiences - this is exactly the kind of practical, real-world tax guidance that's so hard to find elsewhere. I'm definitely bookmarking this thread for future reference during open enrollment!

This has been such an enlightening discussion! As someone who just started a new job with a pension plan, I was completely baffled when I saw my first pay stub showing the same pattern everyone's describing here. My pension contribution clearly reduced my federal taxable wages, but my Social Security and Medicare wages stayed at the full gross amount. I initially thought it was a payroll error and was planning to contact HR, but after reading through all these explanations, I now understand this is exactly how it's supposed to work. The distinction between "pre-income-tax" and "pre-all-taxes" deductions is something I wish someone had explained during my benefits orientation! What's really valuable is learning about Section 125 cafeteria plan deductions and how they provide better tax treatment than retirement contributions. I'm already signed up for health insurance through payroll, but I had no idea I should prioritize HSA contributions through payroll deduction over direct contributions for the FICA tax savings. The perspective about building a higher Social Security earnings record also helps me feel better about those extra FICA taxes. Instead of viewing it as paying more than I should, I can think of it as investing in my future benefits. Thanks to everyone who shared their experiences - this community has been incredibly helpful for a newcomer trying to understand these tax complexities!

Saw this thread and thought I'd throw in my 2 cents. Last year I didn't file because "they already took taxes out of my checks so what's the point?" BIG MISTAKE. Got hit with failure-to-file penalties even though I didn't owe anything extra! Found out I was actually due a $1,320 refund but nearly lost it because there's a 3-year deadline to claim refunds. So yes, filing and paying are different, and yes, you need to file EVEN IF your employer withheld taxes already!!

Don't feel embarrassed at all - this is actually a really common confusion! Think of it this way: filing is like submitting your homework to show what you earned and what was already paid, while paying is the actual money changing hands. Since you mentioned your employer takes taxes out of every paycheck, you've likely been "paying" taxes all year long through those deductions (called withholding). When you file your return, you're basically doing the math to see if those payments were enough to cover what you actually owe. Most people in your situation either get a refund (because too much was withheld) or owe a small amount. The key thing is that filing is required regardless - even if you don't owe anything extra, you still need to submit that paperwork to the IRS. And if you're owed a refund, filing is the only way to get it! You've got this - it's way less scary once you understand the difference.

I'm dealing with almost the exact same situation! Filed my 2020 and 2021 returns together in February, got my 2021 refund in about 6 weeks, but I'm still waiting on my 2020 return after 4+ months. It's been really stressful not knowing what's happening, especially since the IRS website just keeps saying "processing" with no timeline. Reading through all these responses has been such a relief - I had no idea that prior year returns go through completely different processing systems and take so much longer! The explanation about automated vs manual processing makes perfect sense. It's actually really comforting to know so many people are experiencing these same delays and that it's completely normal. I was starting to worry my return got lost or there was some major issue. Thanks for posting this question - it's exactly what I needed to hear to stop panicking about the wait!

I'm in almost exactly the same boat! Filed my 2020 and 2022 returns together in March, got my 2022 refund back in about 5 weeks, but I'm still waiting on my 2020 return after nearly 4 months now. I was getting really worried that something had gone wrong with my filing until I read through all these responses. It's honestly such a relief to know that so many people are experiencing these same delays with prior year returns! I had no idea the IRS processes older returns through completely different systems that are much slower and require more manual review. The Where's My Refund tool has been totally useless - just shows "processing" with no timeline or useful details. Reading everyone's experiences here makes me feel so much better about the wait. Sounds like 6+ months is pretty standard for these older returns, so I guess I need to be more patient. Thanks for posting this question - it's exactly what I needed to see to stop stressing about whether my return got lost somewhere in the system!

I've been following this thread and wanted to share my perspective as someone who works in tax preparation. The discussion here has been really comprehensive, and I appreciate everyone sharing their real audit experiences - that's invaluable information. After reading through all the responses, I think the community has reached the right conclusion: when you have exclusive use of space and regular monthly payments, it's safest to treat this as rental income regardless of the relationship or intent. The IRS guidance is pretty clear that they look at the substance of the arrangement, not just the form. For anyone still on the fence, here's what I typically advise clients in similar situations: Calculate the square footage of the exclusively used space, report the income, and claim proportional deductions for mortgage interest, property taxes, utilities, insurance, and qualifying repairs. Keep detailed documentation of payments received and take photos of the space for your records. The math shared by community members here is spot-on - those deductions usually offset 60-75% of the additional tax liability, making the net impact much smaller than people expect. Plus you get the peace of mind knowing you're fully compliant if you ever face an audit. Thanks to everyone who shared their experiences - this is exactly the kind of real-world guidance that helps people navigate these tricky tax situations!

I've been reading through this entire discussion and wow, what a helpful thread! I'm in almost the exact same situation - my friend from work stayed in my spare bedroom for 6 months and paid me $750/month. I was completely unsure about how to handle this on my taxes. After seeing all the real audit experiences shared here, especially from Leo and Kingston, I'm convinced that reporting it as rental income is the way to go. The fact that both of their situations involved exclusive use of space and regular payments (just like ours) and the IRS treated them as rental arrangements really drives the point home. I calculated that the bedroom/bathroom my friend used was about 200 sq ft out of my 1,300 sq ft house, so roughly 15%. Based on everyone's math here, I should be able to deduct 15% of my mortgage interest, property taxes, utilities, and insurance, which should offset most of the additional tax on the $4,500 income. Thanks to everyone who shared their experiences - this community discussion has been more helpful than any tax website I've found! Better to be safe and compliant than deal with audit headaches later. I'm keeping detailed records of all the Venmo payments and taking photos of the space just in case.