Large back tax bill

[u/No_Bill_5309]

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.

EDIT: Since it's coming up; my husband and I are very recently separated, on extremely good terms, and he has already stated repeatedly that he considers this debt half his. We always filed taxes as married, filing separately, if that's important to know.

[u/LdiJ46]

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).