Saturday, August 1, 2009

Tax Crisis Averted--Working out Payment Plans

So a couple of wage levies and tax liens later, I think I finally have managed to work out my tax woes. I learned a few things along the way.

First, a brief recap. (You can find the whole sordid tale starting with this post.) When we last checked with our heroine, she was intentionally over-withholding from her paycheck (and her husband's) so that when the taxes were filed this year they wouldn't have have another devastating surprise.

So here's the problem with that strategy--the tax man doesn't count that money in your favor and thinks you're a deadbeat until you file your return.

Once again I didn't get the returns filed by April 15. (WTF is wrong with me, anyway?) On April 14th, I got a call from my friends at the state department of revenue, threatening me with a tax lien. (Back story--I had requested a payment plan in November, and never heard back from them despite repeated phone calls from me to them. Don't know what black hole those papers disappeared into.) The thing is, if you have overdue payments, they won't accept an extension of time to file. And they won't enter you into a payment plan until you file any overdue returns. So, it took me awhile to get my return done, and by the time I had, they had levied my wages. But this time, instead of taking out a couple of hundred dollars per paycheck (which, incidentally, I can't afford), they left me with a net of $79. Seventy-nine big ones to pay my mortgage, feed, my children, buy gas to get to work.

Why are they allowed to take so much, you may wonder, as I did. Ah. Well you see it's based on your exemptions. I claim no exemptions (despite the fact that I have two very expensive children) because I've been trying to pay my back taxes through withholding, since I have no other extra cash lying around. (Don't you expect Major Major Major Major from Heller's Catch-22 to wander into this story at any time now?)


Luckily, or you might say stupidly, for me, I had unclaimed reimbursements for my health and dependent care accounts and unfiled expense reports from my employer that came close to making up that one paycheck until I could get my taxes filed. Which I did. And which, predictably, showed an overpayment to the state department of revenue to the tune of almost $1000 dollars for last year. That, combined with the money they skimmed from the garnished paycheck, reduces my outstanding debt to a level I can just about afford. So they stopped the wage levy in the nick of time before a second paycheck could be garnished (thanks to a uncharacteristically helpful state tax employee and my company's finance manager). Of course, I work for a tiny company, so the finance/HR manager told the head of the company. Not really good for my professional reputation.

Moral--don't use current withholding to pay back past taxes. It works against you in many ways.

Another sigh.

While all this was going on, I got a threatening letter from the IRS. They managed to garnish a bank account I use to pay my auto loan earlier in the year. They saw $1000 sitting there, and thought they had found a hidden stash. Luckily for me, I had learned my lesson last year about the dangers of ignoring bills you can't pay. I went to my auto lender's web site and requested a two-month payment deferral. They'll add the two payments onto the end of the loan period. No penalties on my credit report, no additional interest charges or late payment penalties. See, even I can learn.

I worked out a payment plan with the IRS. They stopped taking money from the account. I started paying my auto loan again.

Sigh. Of relief.