Found additional income after submitting tax forms?

February 27, 2023 12:14 PM

We found additional income after I had already submitted our completed 2022 tax forms?

I was searching our December 2022 credit union statement on another matter when I discovered, to my great surprise, a deposit from my husband's workplace, from which he had retired in July of 2021.

When we contacted his employer the reply was: ".... was able to repay employees who were subject to furloughs during covid lockdown. This amount was repayment to you of the funds withheld from you during furloughs."

We have already filed our taxes for 2022, and we never received a W2 statement from his employer so I did not include this amount, $1176.41, on the taxes. Federal taxes had been withheld; there is no state income tax where we live. But since I was unaware of the deposit, which went in the last week of the year, in December, I did not claim these earnings on the (very complicated) 2022 income tax form.

Our tax forms for 2022 included large deposits from our TIAA retirement fund, "required minimum distributions", which skyrocketed our tax bracket from what it had been in previous years. (We are academics who live very simply; we had to take the RMDs and pay taxes on them, but most of the money was redistributed back into the retirement accounts.)

My question is: Do I have to resubmit the tax forms for the paycheck amount, from which federal taxes have been withheld, and which is a very minuscule percentage of our total income due to the RMDs? It will have absolutely no effect on our current (much higher) tax bracket.

Any and all replies welcomed, with many thanks!

posted by ragtimepiano to Work & Money (9 answers total)

The tax bracket doesn't matter; what matter is your total tax liability which will definitely change with the new income.

You should file an amended return (not resubmit; that would just confuse things at the IRS) with the extra income and withholding. Otherwise, the IRS will notice a mismatch and will send you a letter requesting a correction which can probably work too but it'll include penalties (since they'll notice too late) and may invite further scrutiny.
posted by bsdfish at 12:30 PM on February 27, 2023 [4 favorites]

If your marginal tax rate increased, are you sure enough tax was withheld from the amount? It won't be a big difference either way, but if the employer withheld 22% and this year your marginal rate is now 35%, you'll owe an additional ~$150. If/when the IRS notices this, they will send you a letter and ask you to pay and there may be interest and penalties, but they'll be appropriately modest penalties for a $150 debt, and I believe they max out at 25% of the debt.

I think technically you are supposed to amend, but if you decide, "I would rather take the risk of getting an ominous letter from the IRS and having to pay an additional $30 or so in penalties than file those god damn taxes again," that's a pretty reasonable decision to make.

If you're pretty sure the correct amount has been withheld there's even less incentive to do anything.

Obviously I am not a tax professional!
posted by mskyle at 12:31 PM on February 27, 2023 [1 favorite]

It sounds like you did already pay the federal taxes and you wouldn't owe state taxes. So, unless you were underwithholding, you will already have paid the associated tax liability. Ethically, you would be in the clear. But the system is probably going to choke on your reported income not matching the income reported by your employer and come back to you anyway. I am not sure they can impose penalties if you actually paid all taxes owed, but they can't be huge. I admit, if I were quite confident that the withholding was adequate (*), I might wait for them to come back to me for what would ultimately be a ministerial correction rather than going through the potential issues with filing an amended return.

(*) The reason I have some doubt is that it sounds like your RMDs put you in a higher marginal tax bracket. But presumably some amount of the RMDs was taxed in the next bracket down. That bracket would be more "filled up" with the unreported income, meaning more of the RMDs should be taxed at the higher rate. E.g.,

$80: 10% bracket (salary)
$20: 10% bracket (RMD)
---top of 10% bracket on up to $100 income
$20: 20% bracket (RMD)

= $10 + $4 = $14 taxes owed
employer will have withheld $8 on your salary, you pay $2+$4= $6 = $14 taxes paid

$100: 10% bracket (new salary)
---top of 10% bracket on up to $100 income
$40: 20% bracket (RMD)

=$10+$8 = $18 taxes owed
employer will have withheld $10 on your salary, you need to pay $8 = $18 taxes paid

None of this would matter if your RMDs hadn't changed your top marginal bracket, but I think you are likely to have underpaid here just a bit.
posted by praemunire at 12:58 PM on February 27, 2023

When you reached out to the employer, what was their response regarding providing you with a W-2 or other appropriate documentation of taxes withheld?
posted by neutralhydrogen at 1:42 PM on February 27, 2023

Response by poster: Yes, we got the W2 form, but until just now the employer had not sent it.
posted by ragtimepiano at 1:51 PM on February 27, 2023

Thanks for the update - that's the documentation that would be needed to ensure you can amend this and be done with it (it's also the documentation that would be sent to the IRS and potentially be the trigger for them to reach out to you, etc.). I'd recommend submitting an amended return.
posted by neutralhydrogen at 2:16 PM on February 27, 2023 [2 favorites]

My personal experience has been that if you get a tax document that hasn't been accounted for in your tax filing, the IRS will eventually notice and ask you what's up, even if no tax is owed. This used to happen to me a periodically when I was doing consulting. I just send the document to my tax guy, he'd file an addendum for a nominal fee and let me know if I owed any more money (usually not, fortunately). The paperwork isn't too complicated if you want to do it yourself.
posted by kjs3 at 4:29 PM on February 27, 2023 [2 favorites]

A 1040-R usually takes significantly less time to file than a 1040 when it's your own taxes. You're just going to be copying over most of the numbers.
posted by Jacqueline at 7:05 PM on February 27, 2023 [1 favorite]

I usually get a letter from the IRS telling me I did my taxes wrong, that I actually owe $X more or getting $Y bigger refund (usually single-digit dollars, but once about a hundred.) So long as it's less than a thousand dollars they don't even have a fine, and even then it's like 1% of the difference.

They already know how much you owe, they're just not allowed to tell you up front because of lobbying by Intuit, but they can tell you after filing. I'd just wait, pretend you live in a sane country, and let them tell you the proper amount you owe.
posted by flimflam at 10:17 PM on February 28, 2023 [1 favorite]