This post is about federal income taxes.
May 24, 2023 12:26 PM Subscribe
I usually do my taxes, and have for many years. This year the form came up that I owed $1300 and change.
Since my income this year was $27,000, I kind of questioned this, but I checked the figures twice. I have 1 part time job, 1 small pension, and I did some 1099 work for a month last year, about $800.
I did file the extension as I have for the last few years.
Naturally the first thing I did was call up the job and the retirement people and now I am going to change it as they recommended -- to the lowest possible deductions.
I've also looked at the IRS pages to offer a settlement based on hardship -- 30 pages! I couldn't even get through.
I've asked our family lawyer (not really in the family but worked for him part time so really useful, like having a plumber or a mechanic in the family.)
He has given me numbers of two accountants--one never returned the email AND her voice mail was full; and one told me she was retiring.
Any ideas exceopt find another one? I am mindful there are good and bad ones.
Since my income this year was $27,000, I kind of questioned this, but I checked the figures twice. I have 1 part time job, 1 small pension, and I did some 1099 work for a month last year, about $800.
I did file the extension as I have for the last few years.
Naturally the first thing I did was call up the job and the retirement people and now I am going to change it as they recommended -- to the lowest possible deductions.
I've also looked at the IRS pages to offer a settlement based on hardship -- 30 pages! I couldn't even get through.
I've asked our family lawyer (not really in the family but worked for him part time so really useful, like having a plumber or a mechanic in the family.)
He has given me numbers of two accountants--one never returned the email AND her voice mail was full; and one told me she was retiring.
Any ideas exceopt find another one? I am mindful there are good and bad ones.
With your income, you are likely eligible for assistance from a VITA (Volunteer Income Tax Assistance) organization. As far as withholding for next year, if you haven't already, you could adjust the "other income" line on the W-4 for your job and then report the pension income.
posted by Mr.Know-it-some at 12:40 PM on May 24, 2023 [5 favorites]
posted by Mr.Know-it-some at 12:40 PM on May 24, 2023 [5 favorites]
I'm having a bit of trouble parsing the question, but if it is, "what happened?": 1300 total tax is not out of line with that income (quite low in fact, so I suspect 1300 isn't total tax liability?); 1300 owed on top of paycheck deductions is possible but means that your deductions were wrong (but, if this is what you lowered, lowering them would make this problem worse?). What you really want to check is if your total tax liability, including paycheck deductions, is in the right range, and how that relates to last year.
My experience is definitely that a small amount of 1099 work is indeed incredibly annoying at tax time (I wouldn't actually do it in small amounts anymore unless I'm getting something non-monetary, e.g. prestige, from whatever it is), though it wouldn't increase your tax owed by more than what you earned on it. I don't think anything you describe is complicated enough to need an accountant really, but I have used turbotax for business to handle this in the past rather than try to deal with it myself, and you may actually be able to go through all the steps in software like this before actually paying (annoying $$$ for what it is and who you're paying it to) to get a better sense for what the correct outcome should be.
posted by advil at 12:44 PM on May 24, 2023 [2 favorites]
My experience is definitely that a small amount of 1099 work is indeed incredibly annoying at tax time (I wouldn't actually do it in small amounts anymore unless I'm getting something non-monetary, e.g. prestige, from whatever it is), though it wouldn't increase your tax owed by more than what you earned on it. I don't think anything you describe is complicated enough to need an accountant really, but I have used turbotax for business to handle this in the past rather than try to deal with it myself, and you may actually be able to go through all the steps in software like this before actually paying (annoying $$$ for what it is and who you're paying it to) to get a better sense for what the correct outcome should be.
posted by advil at 12:44 PM on May 24, 2023 [2 favorites]
I am going to change it as they recommended -- to the lowest possible deductions
If you ended up owing money then going forward you probably want higher deductions, not lower.
posted by staggernation at 1:25 PM on May 24, 2023 [9 favorites]
If you ended up owing money then going forward you probably want higher deductions, not lower.
posted by staggernation at 1:25 PM on May 24, 2023 [9 favorites]
Many people experienced under withholding in 2022 since the W-4 guidance changed. You don't claim a number of deductions anymore. The W-4 form has changed quite a bit. Are you asking if the IRS will waive or lower this $1300 because you are low income? The answer is no.
I don't think you need an accountant. Make a plan to pay this money, in installments if you cannot pay it all off at once. If you don't pay and don't call, you will get more letters telling you how much you still owe. If you call, they will set you up on a payment plan that includes penalties. They aren't that bad, and you can pay this off in like 14 months if you can swing $100 a month.
Make sure that your federal tax withholding for both the job and the retirement together are at least $100 more for each month than they were last year. If you didn't change your withholding until this month, you need more like $200 per month in withholding. So, between paying off the IRS and this new withholding, you are going to be taking home less money for a while.
posted by soelo at 1:32 PM on May 24, 2023 [4 favorites]
I don't think you need an accountant. Make a plan to pay this money, in installments if you cannot pay it all off at once. If you don't pay and don't call, you will get more letters telling you how much you still owe. If you call, they will set you up on a payment plan that includes penalties. They aren't that bad, and you can pay this off in like 14 months if you can swing $100 a month.
Make sure that your federal tax withholding for both the job and the retirement together are at least $100 more for each month than they were last year. If you didn't change your withholding until this month, you need more like $200 per month in withholding. So, between paying off the IRS and this new withholding, you are going to be taking home less money for a while.
posted by soelo at 1:32 PM on May 24, 2023 [4 favorites]
you probably want higher deductions, not lower
Deductions in this case is referring to the number of dependents that people claimed on the old W-4 form. The money from your income is called withholding and not a deduction. Many payroll departments group everything taken out of your check and call them "Deductions", which just confuses things.
The W-4 form has changed and you don't give them a single number now, so it is a little concerning that a payroll department still uses that method.
posted by soelo at 1:35 PM on May 24, 2023 [2 favorites]
Deductions in this case is referring to the number of dependents that people claimed on the old W-4 form. The money from your income is called withholding and not a deduction. Many payroll departments group everything taken out of your check and call them "Deductions", which just confuses things.
The W-4 form has changed and you don't give them a single number now, so it is a little concerning that a payroll department still uses that method.
posted by soelo at 1:35 PM on May 24, 2023 [2 favorites]
Additional note: 1099 work generally means self employment income and that means you owe another 15 percent on that income for social security and medicare. That is $120 on $800 of income.
posted by soelo at 1:39 PM on May 24, 2023 [1 favorite]
posted by soelo at 1:39 PM on May 24, 2023 [1 favorite]
I changed jobs this year and the HR documentation here explains that they're kind of running dual W-4s. Meaning: new employees have to follow the post-2020 form like I did, but people employed prior to the change are still using their old withholding/allowance count since they haven't filed a new form.
The IRS provides a nice anonymous withholding calculator that will figure out your current situation so far this year, let you choose your position (I want a refund, I want no refund) and advise you how to file a new W-4 to fix it.
posted by JoeZydeco at 1:44 PM on May 24, 2023 [1 favorite]
The IRS provides a nice anonymous withholding calculator that will figure out your current situation so far this year, let you choose your position (I want a refund, I want no refund) and advise you how to file a new W-4 to fix it.
posted by JoeZydeco at 1:44 PM on May 24, 2023 [1 favorite]
If you want to do a payment plan, you can set that up online, no need to call. As others have said, though, that won't explain the reasoning for why you would owe.
As for that question, it's not clear to me if you used software or not. If you did not use software, I suggest going to somewhere like olt.com. You can enter all your particulars and have it calculate everything for you, for free, including federal e-file. (It also gives you all the docs so you could print and file by mail if you wanted to.) You would only have to pay if you wanted to e-file your state income tax return.
Also of note--the extension only allows an extension to file, not pay. If you can, pay what it says you owe now, and then it can be refunded back later. If you can't pay it all now, at least pay part of it. If the amount you owe holds true, minimizing penalties and interest is the name of the game here.
posted by tubedogg at 1:58 PM on May 24, 2023
As for that question, it's not clear to me if you used software or not. If you did not use software, I suggest going to somewhere like olt.com. You can enter all your particulars and have it calculate everything for you, for free, including federal e-file. (It also gives you all the docs so you could print and file by mail if you wanted to.) You would only have to pay if you wanted to e-file your state income tax return.
Also of note--the extension only allows an extension to file, not pay. If you can, pay what it says you owe now, and then it can be refunded back later. If you can't pay it all now, at least pay part of it. If the amount you owe holds true, minimizing penalties and interest is the name of the game here.
posted by tubedogg at 1:58 PM on May 24, 2023
By any random chance are you withholding at the married rate and not the single rate?
For somebody with $27,000 in taxable income of which $800 is from a 1099, your tax burden would be approximately $1,600 (income tax of $1,480 and FICA of $120). For the Married bracket, it comes to $230 (income tax of $110 and FICA of $120. )
The difference is right around $1,300. (There is an added complexity of deducting a portion of the fica taxes that I did not take into account.)
If you your total tax burden was way more than $1,600 then there may be something else amiss. Otherwise the simple solution is to have them withhold at the single tax rate and not the married rate.
posted by SegFaultCoreDump at 6:01 PM on May 24, 2023
For somebody with $27,000 in taxable income of which $800 is from a 1099, your tax burden would be approximately $1,600 (income tax of $1,480 and FICA of $120). For the Married bracket, it comes to $230 (income tax of $110 and FICA of $120. )
The difference is right around $1,300. (There is an added complexity of deducting a portion of the fica taxes that I did not take into account.)
If you your total tax burden was way more than $1,600 then there may be something else amiss. Otherwise the simple solution is to have them withhold at the single tax rate and not the married rate.
posted by SegFaultCoreDump at 6:01 PM on May 24, 2023
It actually sounds about right:
Standard deduction : $14700 (single, over 65)
Taxable Income: $27000 - $14700 = $12300
Income taxed at 10% : $10,275
Income taxed at 12% : $12,300 - $10,275 = $2025
Tax : $10,275 * 0.10 + $2025 * 0.12 = $1,027.50 + $243.00 = $1270.50
I'm guessing that you're over 65 because it makes the numbers come out about right. If you're not over 65, the standard deduction is lower and the final result comes out closer to $1500
Now, I'm not an accountant and it's likely that there's details missing that I didn't know about and it's also possible that I made some mistakes along the way but the $1300 seems at least plausible.
It's always a good idea to get a second opinion and to double & triple check (and to compare with the previous year's numbers) but the number you are getting may just be right.
Sorry to be the bearer of possibly bad news.
posted by metadave at 6:06 PM on May 24, 2023 [1 favorite]
Standard deduction : $14700 (single, over 65)
Taxable Income: $27000 - $14700 = $12300
Income taxed at 10% : $10,275
Income taxed at 12% : $12,300 - $10,275 = $2025
Tax : $10,275 * 0.10 + $2025 * 0.12 = $1,027.50 + $243.00 = $1270.50
I'm guessing that you're over 65 because it makes the numbers come out about right. If you're not over 65, the standard deduction is lower and the final result comes out closer to $1500
Now, I'm not an accountant and it's likely that there's details missing that I didn't know about and it's also possible that I made some mistakes along the way but the $1300 seems at least plausible.
It's always a good idea to get a second opinion and to double & triple check (and to compare with the previous year's numbers) but the number you are getting may just be right.
Sorry to be the bearer of possibly bad news.
posted by metadave at 6:06 PM on May 24, 2023 [1 favorite]
Response by poster: If you ended up owing money then going forward you probably want higher deductions, not lower.
I knew I would get that backwards. I use turbo tax some years and (for some odd reason) some other ones.
And, I left out some Marketplace tax credits which changed it some (not much).
I thought the retirement people withheld taxes--I seem to remember when I set up--but apparently, not enough?
Are you asking if the IRS will waive or lower this $1300 because you are low income? The answer is no.
See if you qualify for an Offer in Compromise to settle your debt for less than you owe. (link): https://www.irs.gov/payments/offer-in-compromise
Well, maybe I do owe. What the hell happened between 2021 and 2022/
posted by Anonymous at 7:57 PM on May 24, 2023
I knew I would get that backwards. I use turbo tax some years and (for some odd reason) some other ones.
And, I left out some Marketplace tax credits which changed it some (not much).
I thought the retirement people withheld taxes--I seem to remember when I set up--but apparently, not enough?
Are you asking if the IRS will waive or lower this $1300 because you are low income? The answer is no.
See if you qualify for an Offer in Compromise to settle your debt for less than you owe. (link): https://www.irs.gov/payments/offer-in-compromise
Well, maybe I do owe. What the hell happened between 2021 and 2022/
posted by Anonymous at 7:57 PM on May 24, 2023
What the hell happened between 2021 and 2022/
I do still think your best bet for understanding this will be to start with your total tax liability (looks like it's line 24 on both the 2022 and 2021 form 1040) for both years and work backwards from there -- not witholdings minus tax liability, which is ~ the amount you currently owe. If you didn't do 1099 work last year and otherwise had a similar income (which is how I originally parsed things) this should have changed some, but not on the order of 1300. So if these are really different, something's wrong with at least one of the years. If this is similar between years but you just owe a lot more this year, then something is likely wrong with how your withholdings were handled or how you're entering them (mainly line 25 both years).
posted by advil at 1:36 PM on May 25, 2023
I do still think your best bet for understanding this will be to start with your total tax liability (looks like it's line 24 on both the 2022 and 2021 form 1040) for both years and work backwards from there -- not witholdings minus tax liability, which is ~ the amount you currently owe. If you didn't do 1099 work last year and otherwise had a similar income (which is how I originally parsed things) this should have changed some, but not on the order of 1300. So if these are really different, something's wrong with at least one of the years. If this is similar between years but you just owe a lot more this year, then something is likely wrong with how your withholdings were handled or how you're entering them (mainly line 25 both years).
posted by advil at 1:36 PM on May 25, 2023
I barely made much money in 2022 and after my session with the online tax thing, I ended up owing the Feds $40, while getting a refund of $200 from the state. And that's with a bit of freelance work. I guess that's an expected result since there were no deductions on the freelance work.
posted by kschang at 11:59 AM on May 26, 2023
posted by kschang at 11:59 AM on May 26, 2023
This thread is closed to new comments.
The tax situation doesn't sound very complex on the surface, which is why I'm somewhat confused.
On the other hand, you should probably set up a payment plan to minimize penalties and interest if you do indeed owe. This won't require very much paperwork at all.
posted by Alensin at 12:29 PM on May 24, 2023