This isn't directly related to your question, but make sure you're also looking at Box 2a (Capital Gain Distributions) on your 1099-DIV. These are reported on Schedule D and then flow to your 1040. Lots of people miss that one. For your cash liquidation question, my understanding is that this happens when a company you own stock in partially or completely liquidates. You should have received a letter from the company explaining the liquidation. Did you get anything like that?

Just want to add that the nondividend distributions (Box 3) are super important to track over time. I messed this up years ago with some MLPs and ended up incorrectly calculating my gain when I sold. Had to file an amended return.

19 Don't forget about state-level requirements too! Depending on where you live, you might also need to withhold for state unemployment insurance. In my state, I had to register as a household employer with both the IRS (for federal taxes) AND with the state workforce agency. The whole nanny tax thing is honestly a paperwork nightmare. I eventually broke down and hired a nanny payroll service that handles all the withholding, tax payments, and filings for about $50/month. Totally worth it to avoid the headache and potential mistakes.

As someone who's been through this exact situation, I can confirm that FICA withholding is absolutely mandatory - there's no legal way around it. When I hired my nanny last year, she also asked me not to withhold anything, but after researching it thoroughly, I realized we had to follow the law. What helped me was explaining to her that the 7.65% she pays actually benefits her in the long run - it goes toward her Social Security credits and Medicare eligibility. Many nannies don't realize that working "under the table" means they're missing out on building their Social Security work history. I'd recommend being upfront with your nanny that this isn't negotiable, but you can work with her on the overall compensation to make sure she's happy with her take-home pay. The penalties for not complying just aren't worth the risk, especially since the IRS has been cracking down on household employer compliance.

Sorry if this is a dumb question, but will my Medicare tax rate increase as I earn more? My friend mentioned something about an "additional Medicare tax" for higher income people?

Just wanted to share my experience as someone who was in your exact same situation a few years ago! When I first saw Medicare tax being deducted from my paycheck while also paying for my employer's health insurance, I thought there was some kind of mistake. What really helped me understand it was thinking of Medicare tax like car insurance vs. life insurance - they're both insurance, but they cover completely different things at different times. Your BCBS covers you right now for doctor visits, prescriptions, etc. Medicare tax is like putting money into a piggy bank that you can't touch until you're 65 (or qualify due to disability). The key thing that clicked for me was realizing that Medicare isn't just health insurance - it's a government program that provides healthcare for elderly and disabled Americans. So when you pay that 1.45%, you're contributing to a system that takes care of millions of people who can no longer work or afford private insurance. It's definitely frustrating to see money leave your paycheck for something you can't use right now, but think of it as investing in your future self. When you're 65, you'll be really glad this system exists!

Something to consider: the EITC has different income thresholds based on filing status and number of qualifying children. For 2025, with one qualifying child, EITC begins to phase out around $46,500 for single/head of household. If your sister's income is right at one of these thresholds, small changes in AGI can have a big impact on the credit amount. This might explain why you're seeing significant changes in the EITC calculation when making adjustments. Most tax software will let you try different scenarios to see what gives the best outcome. Just make sure whatever you submit is truthful - the difference between optimizing your return and misrepresenting information is a critical line you don't want to cross.

As someone who's dealt with EITC calculations for family members, I can confirm what others have said - you're absolutely allowed to choose not to claim deductions you're eligible for. The IRS doesn't require you to take every possible deduction. However, I'd strongly recommend double-checking which specific deductions are actually affecting your sister's EITC. True itemized deductions (medical expenses over 7.5% of AGI, charitable donations, etc.) shouldn't impact EITC at all since they don't change her Adjusted Gross Income. If you're seeing the EITC decrease when adding these deductions in TurboTax, there might be something else going on - perhaps some expenses are being categorized differently than you think, or there could be an interaction with other credits or calculations. Before making any decisions about skipping deductions, I'd suggest running through the calculations manually or getting a second opinion to make sure you understand exactly what's causing the EITC to change. You want to make sure you're making an informed choice rather than missing out on legitimate tax benefits due to a software quirk or misunderstanding.

Has anyone actually had the IRS come back and question these kinds of errors? I had something similar on my W-2 last year (wrong code in box 12) and just filed anyway because I was in a hurry to get my refund. Nothing bad happened...

This is definitely a payroll error that needs to be corrected. As someone who's dealt with similar W-2 discrepancies before, I'd strongly recommend not filing with these incorrect codes even if everything else looks right. The IRS matching system can flag returns where reported tip income doesn't align with typical patterns for your industry. Manufacturing workers aren't expected to have uncollected tip taxes, so this could trigger automated review processes down the line. Here's what I'd do: Contact your HR department immediately and request a corrected W-2c. If they're slow to respond, mention that incorrect tax codes can create compliance issues for both you and the company. Most payroll departments will prioritize fixing these errors once they understand the potential implications. While waiting for the correction, don't let the filing deadline stress you out. You can request an extension if needed. It's much better to file correctly with a slight delay than to deal with IRS correspondence later asking you to explain tip income you never received.