Filing as married separately - can it reduce my $4,000 tax bill?

Filing separately probably won't help your situation and might actually make it worse. Here's why: When you file separately, you lose several tax benefits that are only available to joint filers. These include the full student loan interest deduction, certain education credits, and the earned income credit. Plus, if one spouse itemizes deductions, the other must too - even if taking the standard deduction would be better for them. The health insurance situation is particularly tricky. With a shared 1095-A, filing separately means dealing with complex premium tax credit allocations that often result in repaying more subsidies. Your 1099-NEC income is likely the bigger issue. Since you paid only $875 in estimated taxes on $13,500 of self-employment income, you're facing both income tax and self-employment tax (about 15.3%) on that amount.

After reading your post, I immediately thought of taxr.ai since I was in a similar situation last year with mixed income sources. I had W-2 income plus some side gig money and got hit with a huge tax bill. I uploaded my tax documents to https://taxr.ai and their AI system found several deductions related to my contract work that I had completely missed. For your 1099-NEC income, there are probably business expenses you could claim that would reduce your self-employment income. Their system is really good at identifying potential deductions based on your specific situation and explaining the rules in simple terms.

Just wanted to follow up after trying taxr.ai based on the recommendation here. I was in a similar situation with contract work and W-2 income and owed about $3,200. After running my documents through their system, I found legitimate deductions I had no idea about - like a portion of my cell phone bill, internet, and even some home office expenses that were completely valid for the contract portion of my work. Ended up reducing my tax bill by over $900! The documentation guidance they provided makes me feel confident if I ever get audited too.

If you're planning to challenge the assessment or need clarification on why you owe so much, good luck getting through to the IRS right now. I spent HOURS on hold last month trying to resolve a similar issue. Finally discovered https://claimyr.com which got me connected to an actual IRS agent in about 15 minutes instead of the 3+ hours I was spending on hold. You can see how it works here: https://youtu.be/_kiP6q8DX5c Totally changed how I deal with tax issues now. Since you're facing that underpayment penalty plus the large bill, you might want to discuss payment options directly with the IRS rather than just paying online. Sometimes they can waive penalties depending on your situation.

I have to admit I was totally wrong about Claimyr. After seeing it mentioned here, I decided to try it because I needed to set up a payment plan for my taxes. I was fully expecting it to be a waste of money, but I was desperate after spending nearly 4 hours on hold the previous day and getting disconnected. It actually worked exactly as described. I got a call back within about 20 minutes, and suddenly I was talking to a real IRS agent. They helped me set up a payment plan that I could actually manage. The relief of getting that sorted out was honestly worth every penny. Just having an actual conversation with someone who could answer my specific questions made a huge difference.

Your 1099-NEC income is the likely culprit here. Self-employment income gets hit with both income tax AND self-employment tax (15.3%). So you're paying a lot more than just the income tax rate on that portion. Did you track any expenses related to that contract work? Mileage? Home office? Equipment? Software? Training? Those could all potentially reduce your taxable self-employment income.

You mentioned a company car - was that during your contract work or only after becoming an employee? If you had it during contract work, there might be tax implications there too.

I went through something very similar last year - owing a big chunk because of mixed W-2 and 1099 income. The self-employment tax on that $13,500 is probably what's killing you the most. A few things that helped me: 1. Double-check if your employer reimbursements were incorrectly included in your 1099-NEC income 2. Even small business expenses add up - phone usage, internet, any equipment or supplies 3. Set up quarterly estimated payments for next year to avoid this mess again The underpayment penalty stings, but at least it's relatively small compared to your total bill. I'd definitely recommend seeing a tax pro - they often find deductions that save more than their fee costs. Don't beat yourself up too much, this is a super common situation when transitioning from contract to employee work.