Well, That Could Have Been Worse: I Screwed Up Our Withholding
I have been in charge of taxes at Casa FP ever since we were married in 2001. (Prior to that, my parents’ accountant did my taxes, and Mr. FP did his by hand, on paper.) In the early years, I used to take them to H&R Block or some other tax place, but these days I do them with tax software.
Some years we’ve owed several hundred dollars, depending on my self-employment income (which has been as high as about $10K). One memorable year, we got a large refund. In fact, we got back more than we paid–when Mr. FP was teaching at a boarding school, we qualified for the EITC. (Since we were getting free housing, we were actually doing pretty well, but the IRS didn’t ask if we had to pay rent.)
I thought this year would be pretty neutral. Maybe a small refund. I made just a few thousand on the side and we have kids.
Then I found out I made a mistake. A big one. See, we both have dependent care FSAs. I thought that we could withhold, pre-tax, five thousand dollars each in those accounts. So… that’s what I did. Our child care expenses were about $9370, so that’s what I had withheld.
Turns out, that five thousand dollar limit is per family. Not per person. That means we had about $4730 on which we owed taxes, but had not had taxes withheld.
Why didn’t I know that? I have no idea. You’d think I would have noticed. Or researched it. Or something. But neither employer’s paperwork mentioned it and I didn’t think to look it up. Oops. Friends, learn from my example. You gotta Google this stuff. You can find all kinds of reasonably clearly worded explanations of tax stuff online*.
TaxAct keeps a little running tally of how much it thinks you owe, and at one time, this was close to two thousand dollars for federal and state, including a federal penalty as federal owed was over a grand. I began to panic. I contemplated freezing all purchases even though I have been wearing the same sweat pants since 1998.
Happily, I had two more pieces of info to put in. The first was one last IRA contribution of $500. That actually tipped us under a thousand owed and did away with the penalty. The second was Mr. FP’s tuition paid. He learned that with a few easy classes, he could up his paycheck (by getting to “master’s plus 15” on the pay scale). He did that, and spent around $1500 in the process. That was good enough for a $300 Lifetime Learning tax credit.
Total owed, federal and state, came to $1499. No penalties. It’s money we were always going to owe, it’s just that instead of paying it throughout the year, we’re paying it now. It sucks. It stings. But it could have been worse. And while it’s going to eat up a lot of our cash savings, it’s not going to clean us out. We’ll still have enough left for, say, one major car repair after we pay. I decided I was not so destitute that I had to mend 18-year-old sweatpants and bought sleek new exercise pants with some belated birthday gift money. (Thanks again, Auntie B.)
How did your tax season go? Do you DIY?
*Obligatory disclaimer that if in doubt, you should talk to a CPA. I am obviously not one and have, as evidenced here, absolutely no expertise in this area.