Long story short, my mother helped me set up my work benefits in early 2024, and mistakenly selected the tax exemption option, thinking college students were exempt. I haven’t filed yet, but I estimate I owe around $8,000 in federal taxes. This is my first year working full-time, and I didn’t realize I wasn’t paying federal tax until now.
What can I do now? How much time do I have to pay it off? I can’t afford to pay it all at once. I’m a full-time student with limited scholarships, so most of my income goes to tuition and living expenses.
I’m aware this is likely a big mistake, but I’m trying to figure out my options. For context: I made about $80,000 last year, including a $16,000 bonus. Tuition is $60,000 annually, and I receive $20,000 in scholarships. My rent is $1,400 + utilities.
First, fix your withholding settings so they start taking out taxes for your future wages.
Make sure to file your tax return on time. There’s no extension for paying, but you can request an extension to file, moving the deadline from April 15 to October 15.
If you live in a southeast state, TX, or CA, there may be disaster relief extensions, which might give you extra time to pay.
Since you provide more than half your financial support, you’re not a dependent and can claim education credits on your tax return, which may help offset your taxes.
When you file, prepare Form 9465 for an installment agreement. It has a small setup fee, but it’s like taking out a loan from the IRS, allowing you to make monthly payments. The debt will accrue interest, but you can pay more when possible. If you have a future refund, it will go toward your installment balance.
Teal said: @Wesley
Could you explain Form 9465 more? Where can I get it from? Thanks!
You can find Form 9465 in your tax software. You can submit it with your return, or apply online after you’ve filed. If you submit it with your return, you’ll get a letter from the IRS in about 8 weeks saying they accepted the agreement. It’s unlikely they’d decline it in your case.
No advice, but I just want to acknowledge this is a tough situation. Don’t beat yourself up too much. You trusted your mom to help guide you. You’ll get this worked out with a payment plan.
One bit of advice: double-check other settings your mom may have set up, like retirement contributions. It may be time to start taking over these financial responsibilities.
You can wait for the first notice and then request an extension to pay, followed by an installment agreement over up to 7 years. Penalties and interest will still accrue.
Willoughby said:
You can wait for the first notice and then request an extension to pay, followed by an installment agreement over up to 7 years. Penalties and interest will still accrue.
North said:
They will deduct what you owe from your next tax return. I owed $250 and they deducted it from my next return.
That’s bad advice. While that may work for small amounts, you’re looking at $8,000. There will be penalties for underpayment and failure to pay. The IRS charges interest on this, and it’s at 7% now, which is about $50/month on an $8,000 balance, plus penalties. It’s crucial you set up a payment plan immediately to avoid this growing larger.
Interest compounds daily like a credit card. If you can pay $4,000 now, that’s a good start. But get them finalized ASAP and set up a payment plan. If you can’t pay it off soon, don’t put it on a credit card unless you can get 0% interest for 12-18 months.
Don’t have your mom do your taxes—consider hiring someone more qualified. Some universities offer free tax prep services, so you might want to look into that.
Teal said: @Day
Thanks for the advice! I can pay $4,000 if I drain my savings. Not sure if I can pay the rest by April. How does interest build? Is it monthly?
Interest compounds daily, like a credit card. Every payment reduces the balance, which reduces the interest and penalties.
The failure to pay penalty is 1/2% per month on the balance, up to 25%. Once you set up a payment plan, that penalty drops to 1/4% per month, still capped at 25%.
It’s important to get everything filed and submitted as soon as you can and to get on a payment plan. If you need to borrow money, talk to your mom—she made the mistake, after all. And be sure not to use a credit card unless you’re sure you can pay it off in the 0% interest period. Good luck!