One thing to consider - the excise tax is only $2.10 (6% of $35), which is less than the $25 processing fee for withdrawing the excess. Financially, you made the right call. If I were you, I would: 1. Answer "No" to FreeTaxUSA's question about withdrawing the excess 2. Make sure Form 5329 is included with your return (the software should handle this) 3. Pay the small excise tax now 4. Keep documentation from your HSA custodian showing the recharacterization 5. When filing next year, be aware that your 2025 contribution limit effectively includes this $35 The most important thing is proper documentation. As long as you have proof of what happened and report it accurately, you'll be fine!

Great advice from everyone here! I just want to add one more thing that might help - when you're dealing with HSA overcontributions in the future, timing really matters. If you catch the error before your tax filing deadline (including extensions), you can withdraw the excess contribution AND any earnings on it without penalty. But once you file your return, you're locked into either paying the 6% excise tax or dealing with more complex correction procedures. For your current situation, you've already made the right choice given the circumstances. The $2.10 excise tax is definitely better than the $25 processing fee, and you avoided the hassle of dealing with earnings calculations. Just make sure to adjust your HSA contributions for 2025 to account for that $35 that's being applied to next year's limit!

This has been an incredibly informative thread! I'm dealing with almost the exact same situation - about $3,200 in winnings from Underdog and PrizePicks over the past 10 months, and I was completely clueless about the tax implications until I found this discussion. After reading through everyone's experiences, I've learned so much that I wish I'd known earlier. The key takeaways for me are: 1) All winnings are taxable gambling income regardless of receiving tax forms, 2) I need to report everything on Schedule 1, 3) Losses can only be deducted if I itemize (which probably doesn't make sense given the standard deduction), and 4) I should start setting aside 25-30% of future winnings for taxes. I just downloaded my transaction histories from both platforms using the navigation tips shared here - found them under Account Settings for PrizePicks and Account > History > Transactions for Underdog. The CSV exports show everything I need and confirm my net winnings figure. Planning to implement that Google Sheets tracking system immediately and set up automatic transfers to a separate tax account going forward. Based on my $3,200 in winnings, I'm looking at owing around $800-960 in taxes, so I definitely need to get organized for next year's quarterly payments to avoid underpayment penalties. Thanks to everyone who shared their real-world experiences - this community knowledge is far more practical than anything I could find through official channels. This thread probably saved me from making some costly filing mistakes!

This thread has been incredibly helpful for understanding DFS tax obligations! I'm in a very similar situation with about $2,800 in winnings from Underdog and PrizePicks, and I was completely lost until I found this discussion. One thing I wanted to add that I discovered while going through my records - make sure to check if your platforms have any "bonus" or "promotional" winnings that might be treated differently. I noticed that some of my early wins came from deposit match bonuses, and I wasn't sure if those counted as gambling winnings or something else entirely. After digging into it, I learned that any cash bonuses that become withdrawable are still considered gambling income for tax purposes, even if they originated from promotional offers. So those need to be included in your total winnings calculation just like regular contest wins. Also want to echo what others have said about the Google Sheets tracking system - I just set one up based on the suggestions here and it's already helping me organize everything much better. Having all the data in one place makes the tax situation feel way more manageable. Planning to download my transaction histories this weekend and implement the 30% automatic transfer rule going forward. Thanks to everyone who shared their experiences - this community knowledge has been invaluable!

I tried both TurboTax and FreeTaxUSA this year too! something I noticed that nobody mentioned is that TurboTax keeps your old returns accessible for years but FreeTaxUSA only gives you access to prior year returns if you pay for their deluxe version... found that out the hard way when I needed last years AGI and couldn't access my FreeTaxUSA return from last year 😭

Great comparison! I switched from TurboTax to FreeTaxUSA this year after getting hit with similar upgrade fees. One thing that really helped me was keeping a simple spreadsheet throughout the year tracking my tax-relevant expenses and income sources. When tax season came around, I had everything organized which made the manual entry in FreeTaxUSA actually faster than waiting for TurboTax's imports to work properly. The $90 savings you mentioned is no joke - that's real money! I ended up using those savings toward my emergency fund. For anyone still on the fence, FreeTaxUSA also has a really helpful "tax calculator" feature that lets you estimate your refund before you even start entering information, which helped me feel more confident about switching from the "name brand" option. One small tip: FreeTaxUSA's customer support is actually pretty responsive if you run into issues. I had a question about reporting HSA distributions and got a helpful response within a few hours via their chat feature.

Just wanted to add one more important point that might help your aunt's case - if the restaurant is requiring her to wear specific uniforms, follow their dress code, or use their point-of-sale system and procedures, these are all strong indicators of employee status rather than independent contractor. The IRS looks at three main factors: behavioral control (how and when work is done), financial control (business expenses, payment method), and relationship type (permanency, benefits). From what you've described, your aunt clearly falls under employee classification on all three factors. I'd also suggest having her keep detailed records going forward - clock in/out times, any direction she receives from management, scheduled shifts vs. actual flexibility, etc. This documentation could be valuable not just for the current tax situation but also if there are any future issues with the restaurant's employment practices. One last thing - make sure she knows that even if the restaurant refuses to correct the classification, she's still entitled to any tips that were withheld or improperly handled under their contractor classification. Employee vs. contractor status affects tip reporting and distribution too.

This situation is incredibly frustrating but unfortunately very common in the restaurant industry. Your aunt is absolutely being misclassified - everything you've described (set schedule, formal hiring process, using their equipment, following their procedures) screams "employee" not "contractor." Here's what I'd do in this exact order: **First approach the restaurant diplomatically.** Sometimes new businesses genuinely don't know the rules. Print out the IRS's worker classification guidelines and politely explain that based on her working conditions, she should receive a W-2. Many restaurants will correct this quickly once they understand the legal requirements. **If they refuse, don't panic.** File Form SS-8 with the IRS to get an official determination of her worker status. This can take months, but it puts you on the right track. Simultaneously, when filing her taxes (which you still need to do by April 15th regardless), use Form 8919 with reason code G to indicate you're disputing the classification. This way she only pays the employee portion of FICA taxes, not the full self-employment tax. **Document everything now** - her work schedule, any training materials, uniforms, employee handbook, the job posting she applied to. This evidence will be crucial if you need to escalate. Don't just accept the 1099 and pay the extra taxes. That's essentially rewarding the restaurant for breaking employment law and will cost your aunt significant money she shouldn't owe.

This has been an absolutely fantastic thread - probably the most practical and informative discussion I've seen about IRS audits and payment app scrutiny. As someone who's been anxiously googling this topic for weeks, finding actual experiences from people who've been through audits is incredibly valuable. I'm a small business owner (marketing consulting) and like many others here, I receive a significant portion of my payments through Zelle - probably around $35K annually. I've been good about reporting all the income, but after reading everyone's experiences, I realize my documentation has been nowhere near adequate. The key insights I'm taking away: 1) The IRS absolutely can and will examine these transactions during audits, 2) They're looking for patterns of unreported income, not specifically targeting payment apps, 3) Good documentation is your best friend, and 4) Separating business and personal accounts is crucial. I'm implementing the spreadsheet tracking system immediately and opening a dedicated business account this week. For anyone else feeling overwhelmed by this topic - it seems like the solution is really about getting organized rather than avoiding these payment methods entirely. Thanks especially to those who shared their actual audit experiences (NebulaNinja, Raúl, AaliyahAli, and others) - your real-world insights are worth their weight in gold for those of us trying to stay compliant and prepared.

This thread has been incredibly helpful! As someone who just started freelancing and receives about 80% of my payments through Zelle, I was really worried about potential audit issues. Reading everyone's actual experiences has been so much more valuable than the vague advice you usually find online. What really stands out to me is how consistently everyone emphasizes that proper documentation is the key, not avoiding payment apps entirely. The fact that Zelle transactions go directly through your bank (thanks for that clarification!) means they're already part of your regular banking records anyway. I'm definitely implementing the spreadsheet system that multiple people have recommended - tracking source, amount, date, and purpose seems like such a straightforward approach. Also planning to open a separate business account immediately, even though I'm still small-scale. One thing that gives me confidence is hearing from people like NebulaNinja and Raúl who actually went through audits and found the agents were reasonable as long as they could explain their transactions and show they'd been reporting income properly. It makes the whole process seem much less scary when you know what to expect and how to prepare. Thanks to everyone for sharing your real experiences rather than just speculation - this is exactly the kind of practical advice new freelancers like me need to stay compliant and organized from the start!