This is exactly the kind of situation that keeps me up at night as a small business owner! Thank you Justin for sharing your story - it's both terrifying and reassuring to know I'm not the only one who's made these kinds of mistakes. What really stands out to me from all these responses is how much the IRS seems to value good faith efforts and honest communication. It sounds like being proactive and documenting everything you tried to do right is almost as important as the actual compliance itself. I'm bookmarking this thread because the advice about First Time Penalty Abatement, getting extensions on deadlines, and even the deductibility of backup withholding payments are all things I never would have known about. It's amazing how much critical tax information isn't readily available to small business owners when we need it most. For anyone else reading this in a similar situation - it seems like the key takeaways are: don't ignore the notices, document your good faith efforts, ask specifically for First Time Penalty Abatement, and don't be afraid to get help whether that's through professional services or just getting connected to the right IRS representative. This community is incredibly valuable for sharing these real-world experiences!

As someone who's been lurking in this community for a while but never posted, I felt compelled to share after reading through all these responses. I went through almost the identical situation with Form 945 backup withholding about 18 months ago, and I wish I had found advice like this back then! What I want to emphasize is that the emotional toll of these tax issues can be just as challenging as the financial impact. I remember feeling like a complete failure as a business owner and losing sleep for weeks. But the reality is that these compliance gaps are incredibly common for new businesses - you're definitely not alone in this, Justin. One thing I learned that hasn't been mentioned yet is to keep detailed records of ALL your interactions with the IRS throughout this process. Dates, times, names of agents you speak with, reference numbers - everything. I had to call back multiple times during my case, and having that information made each subsequent call much smoother because agents could see the history of our discussions. Also, while the financial aspect is scary, remember that small businesses survive these situations all the time. The IRS has programs specifically designed to help businesses get into compliance, not to shut them down. Focus on the solutions people have outlined here rather than the worst-case scenarios your mind might be creating. You've already taken the hardest step by asking for help and being proactive about addressing this. That puts you way ahead of business owners who just ignore IRS notices and hope they go away!

Be careful with how you report this! I made a big mistake with my scholarship last year. My school put the full-year scholarship amount on my 1098-T even though half of it wasn't disbursed until January of the next year. I reported the full amount as income and ended up paying taxes on money I hadn't even received yet! Had to file an amended return to fix it, which was a huge hassle. Definitely only report the scholarship money you ACTUALLY RECEIVED during the tax year, regardless of what shows on the 1098-T.

I went through this exact same situation with my full-ride scholarship last year! Here's what I learned that might help: First, you're absolutely right to only report what you received in 2022. Don't let the 1098-T confuse you - schools often report scholarship amounts differently than when you actually receive the money. Keep good records of when funds hit your account. For the textbook expenses, definitely include those $275 as qualified expenses! But also check if you had any other required materials - lab fees, course-specific software, required equipment, etc. These can all reduce your taxable scholarship amount. One thing that caught me off guard was quarterly estimated taxes. Since scholarship income isn't subject to withholding like a regular job, you might want to consider making estimated payments if your tax liability is going to be significant. The IRS can hit you with penalties if you owe too much at filing time. Also, double-check your school's disbursement records against the 1098-T. Sometimes there are discrepancies, and you want to make sure you're reporting based on actual cash received, not what the school thinks they awarded you. The good news is that at your income level, even with the excess scholarship, your tax bill shouldn't be too scary. Just make sure you're prepared for it!

As a newcomer to this community, I wanted to add my perspective on this W4 processing issue. Reading through everyone's experiences has been incredibly helpful - it's clear this is a common problem with well-established solutions. What really stands out to me is how much more effective people were when they approached HR with specific documentation rather than just general complaints. The advice about comparing paystubs before and after your W4 submission, asking for the exact date your form was entered into the payroll system (not just received), and keeping detailed records of who you spoke with and when seems like the gold standard approach. I'm particularly encouraged by how many success stories there are here once people took that proactive step to follow up. It sounds like most of these delays have straightforward explanations - forms sitting in approval queues, notification emails going to spam, or simple data entry backlogs - that get resolved quickly once someone actually investigates. For anyone hesitating about whether to follow up: based on this discussion, two pay periods plus a manager's specific timeline definitely justifies a polite but direct conversation with your payroll department. Your budget and financial planning shouldn't suffer because of administrative delays. Don't feel guilty about advocating for yourself - this is about your paycheck working correctly, which is a completely reasonable expectation!

As a newcomer to this community, I want to echo what others have said about not waiting any longer to follow up with your HR department. Two pay periods plus your manager's specific timeline absolutely justifies reaching out now. From reading through all these helpful experiences, it's clear that the most effective approach is being prepared with documentation when you have that conversation. I'd recommend gathering your paystubs from before you submitted the W4 and your most recent ones, so you can show the exact withholding amounts that should have changed but didn't. When you speak with HR or payroll, ask specifically when your W4 was entered into their system (not just when they received it) - several people mentioned discovering their forms were received but stuck in processing queues or approval workflows. That's often where the delay happens. Don't feel bad about advocating for yourself here. This affects your budget and financial planning, and you've already been more than patient. Based on all the success stories shared in this thread, most of these situations get resolved quickly once the right person takes a closer look at what happened with your paperwork.

I'd also recommend keeping a spreadsheet that tracks each withdrawal against specific medical expenses. When I made my first large HSA withdrawal ($15k), I created a simple Excel file with columns for withdrawal date, amount, and which specific medical receipts I was using to justify that withdrawal. This became invaluable when my tax preparer needed to verify everything for Form 8889. Having that clear paper trail showing exactly which expenses corresponded to which withdrawals made the whole process much smoother. Plus, if you ever do get questioned by the IRS, you can quickly show them the connection between your distributions and your qualified medical expenses. The key is being proactive with your record-keeping rather than trying to piece everything together later if questions arise.

One thing I learned from my CPA is that the IRS is actually more focused on whether you're properly reporting HSA distributions rather than the specific amounts. What tends to trigger scrutiny is when people forget to report distributions at all, or when they claim the entire distribution as a qualified medical expense without having proper documentation. Since you mentioned having $65k in receipts for a $40k total withdrawal, you're in a really good position. Just make sure you keep those receipts organized by date and clearly mark which ones you're using for each withdrawal. I'd also suggest taking photos or scanning everything as backup - I had a receipt fade over time and was glad I had a digital copy. The fact that you're being thoughtful about this process and keeping good records puts you way ahead of most people. Even if you did get selected for review, having organized documentation showing legitimate medical expenses will resolve things quickly.

A tip from someone who's been doing this for years: You can adjust your W-4 to have ADDITIONAL withholding rather than messing with deductions. On the new W-4, there's a line for additional withholding. You can put a NEGATIVE number there (like -$50) and your employer's system might process it, resulting in less withholding without claiming fake deductions. Some payroll systems catch this, but many don't.

For professional guidance, I'd recommend starting with a CPA (Certified Public Accountant) rather than a tax attorney. CPAs are perfect for tax planning strategies like optimizing your W-4 withholding, and they're generally more affordable than attorneys. Tax attorneys are typically needed for more serious issues like tax disputes, audits, or complex legal matters. A good CPA can help you calculate exactly how much you can reduce your withholding while staying within the safe harbor rules. They can also help you set up a system to save the extra money from each paycheck so you're prepared for tax time. One thing to consider: if your income varies significantly from year to year, the safe harbor calculation based on last year's taxes might not work as well. In that case, you'd want to base your withholding on 90% of this year's expected tax liability, which requires more careful planning. Also, don't forget that some states have their own underwithholding penalties separate from federal taxes, so make sure you account for state taxes in your calculations too.