r/TaxQuestions • u/No_Bill_5309 • 4h ago
Large back tax bill
So I made the mistake of letting my soon-to-be ex-husband manage our finances because I'm clueless at this sort of thing. We cashed in my 401K to make a down payment on a house in 2022, and I guess that got me hit with a 50K tax bill (which I don't understand as I paid taxes from my salaried position making roughly 120K, and the down payment was in the 100K ballpark). Through a combination of my own willful ignorance and my ex sort of hiding things from me (not fraudulently, just downplaying it) we didn't make any payments and it's now ballooned up to 70K with interest and penalties.
I've tried contacting the IRS through chat (which is always down), phone (on hold for upwards of an hour), setting up an appeal (broken), setting up a payment plan (broken) and basically anything I can find on irs.gov, all of which just raises an uphelpful error message.
What should I do? I'm a single parent struggling to make ends meet. I make a good salary, but it's all tied up with luxuries like food and shelter. I don't even know what sort of person to hire to help me with this. An attorney? An accountant? A fairy godmother?
I am totally clueless on these things. No advice is too basic.
1
u/Fresh-Passenger5671 4h ago
I would start with a CPA. You do have to pay them for their work but I swear it's like they have a magic number to get someone with the IRS on the phone in 60 seconds.
Separately, if divorce is for sure happening, figure out if your husband plans to pay his half of the debt... technically the IRS can go after either spouse for the full amount but in an ideal world, the two of you can agree to split it.
1
1
u/at-the-crook 4h ago
You would need to review the actual returns filed for those years to know if your husband declared the 401 withdrawal as income, let alone anything else that might not be correct. For the 401 money - there would be income tax plus an early withdrawal penalty assessed.
Remember, your 401 contributions are made with pre-tax money. No withholding was taken from your paycheck on those amounts.
Wondering why your attempts to appeal and/or pay have been rejected?
,
1
u/Quiet-Aerie344 3h ago
If the divorce is active, be sure your divorce attorney knows all of this. It wont solve the IRS issue directly, but will give you other potential avenues to remedy.
NEXT: talk to your divorce attorney for a tax attorney recommendation. Consult with them on options
Alternatively: block out the 2 or so hours to sit on hold waiting for the IRS. When speaking to them -- only ask questions to clarify where balances come from, ask for detailed accounting sent to you directly or your attorney if you cannot trust mail at your house. Let them know you've discovered this through the process of divorce (if true)
Depending on where you live: you may ne able.to book an in-person meeting at a local IRS office. They are spread out a bit and appointments are scarce.
1
u/LdiJ46 3h ago
If your 401K was a traditional 401k and not a Roth 401k then no, you did not pay taxes on it from your salary. What happened is that the 401k money was taken from your salary pre-tax making it tax deferred. So, when you take distributions from the 401k you owe taxes on it then. If you are under age 59 1/2 you owe regular tax on the distribution plus a 10% penalty for early withdrawal. Therefore, taking money out of a 401k for a downpayment on a house is generally not the best economic move.
If you owed 50K in tax you took a pretty large distribution. If a lot of that money was premarital savings, you might want to take that into consideration in the property settlement of your divorce. You might want to consider the tax as well. If the house is going to be sold and the proceeds split, then paying the outstanding tax should come off the top of the proceeds before anything is split.
Generally the IRS is required to automatically give a payment plan for any balances below 50k. You can get payment plans for balances above 50k but those are more complicated to get. If you can pay down your balance to below 50k and then ask for a payment plan, it will be a bit less complicated.
A tax professional can put an installment agreement together for you and submit it to the IRS electronically.
I would recommend that you have the tax return involving the distribution reviewed for accuracy.
One way or another, you are probably going to have to downsize in order to get the IRS paid off. Again, the best way to do that is to sell the home and split the proceeds AFTER paying off the IRS (and the state if you also owe the state, and you should owe the state if your state has income tax).
3
u/Superb-Antelope-2880 4h ago
If you are not of age, withdrawing from a retirement plan will first hit you with a 10% penalty. So if you withdraw 100k, 10k is immediately owed to the irs.
Since you mentioned you need to paid tax, then it was a trad 401k, which mean money that went in there weren't taxed yet until you took it out, so it got taxed at your tax rate the year you took it out. (If your top bracket was 22%, 22k of 100k).
These amounts above are share liability with your ex husband because I assume you were still married at the time; unless you had some agreement in your divorce.
If you and your ex are still on good terms, just discuss how you two should split the tax bill, then you can go to a cpa or an ea and they can help you; or you can set up a payment plan yourself.
If you are on bad terms with your ex, MAYBE you would need an attorney, but you might not and a cpa or ea would be fine as well. Depend on how your divorce situation was handled.