This page provides answers to the most common tax questions we receive. All answers are provided by Debt.com’s resident tax expert, Jacob Dayan. If you still have questions, head over to our Ask the Expert section to get the answer you need.
Please note: If you’re having trouble with your taxes, almost every situation is unique. So, you need to consult with certified tax professional individually to make sure you’re taking the right steps for the circumstances you’re in.
Debt.com can connect you with a certified tax specialist that can help you make a plan to eliminate your tax debt!
Q:Do I have to pay taxes on freelance work?
A: This depends on how much money you make from your freelance work. Once you hit at least $400, you have to pay taxes on it. It’s recommended that you set aside 25-30% of your freelance income to ensure you have enough when you file your taxes.
Learn how much you owe on your side hustle or freelance income »
Q:How does the IRS find out I have tax debt?
A: If you don’t file, then how does the IRS even determine how much you owe in back taxes and when to audit you? With today’s technology and our cultural dependence on databases, you’re going to have a hard time hiding forever. The IRS uses third-party information to find out that you have unreported income.
Q:How much tax do I pay on a 401k withdrawal?
A: As long as you’re over age 59, you can start to withdraw money from your 401k without penalties. However, those withdrawals are subject to income taxes. The amount withdrawn will be added to your other income sources to determine your taxable income. The IRS requires your plan administrator to withhold 20 percent for federal withholding. However, your tax can be higher than this rate, depending on your overall income. You should estimate your total income and withholding to determine if it is necessary to make any additional estimated tax payments.
Q:How fast will the IRS garnish my wages if I don’t pay my taxes?
A: Before the IRS can garnish your wages, they must issue a series of notices prior to issuing the garnishment. That process can take months or years. In some cases, wage garnishment never happens. In general, the size of the balance will impact the likelihood of facing collection activity, such as garnishment. So, the chances of facing wage garnishment will generally increase as penalties stack up.
Q:I can’t pay my taxes. Should I file anyway?
A: If you know you won’t be able to pay your taxes, it might seem like a good idea to just not file until you can at least get back on your feet and have the money to pay. But really, this is the worst choice you can make when it comes to debt. Learn why you don’t want to try and dodge the IRS and what can happen if you do.
Q:If I don’t send in my payment by the 15th of April what happens? How much is added for a late fee?
A: The major penalty that the IRS will hit you with is the failure-to-file penalty. So, as long as you file on time, you avoid the biggest penalty, even if you can’t pay by the 15th. The failure-to-pay penalty kicks in if you don’t pay an outstanding balance by the 15th. However, it is manageable at .5% per month. There is also a modest interest rate that the IRS will charge you.
Q:What do I do if my spouse hasn’t paid our taxes?
A: If your spouse causes problems with tax debt, such as not filing, not paying on back taxes and even underreporting income, you may not find out until the IRS comes after you for the debt – even if you’re divorced. We help you understand your rights to claim Innocent Spouse Relief and tell you what you need to know to qualify.
Read about what it means for you if your spouse owes back taxes »
Q:What is a tax extension?
A: There are a couple of different types of tax extensions: an extension to file and an extension to pay. Neither will get you out of the penalties that apply when you don’t pay all of your taxes on time.
Read about the form you need to file to get a tax extension »
Q:What is tax debt?
A: You incur tax debt when you owe money to the Internal Revenue Service (IRS) after the filing date. If you filed on time but only paid part of your tax bill, the remaining balance is considered tax debt. This balance is subject to penalties and will grow with time.
Q:What should I claim on my W-4 if I’m a single parent?
A: In general, single parents claim themselves and their children as dependents. This is predicated on you have only one job, little to no other income, and claiming the standard deduction. So, for example, if you are a single mother with twins, you can safely claim three dependents on your W-4. If you have joint custody of a child, you can only claim the child as a dependent if the child lives with you more than half of the year and you cover more than half of the child’s expenses.
Q:Which parent can claim a child on their taxes?
A: This can be tricky because there are a few factors to consider. As long as a parent has the child’s name, date of birth and Social Security number, they have the ability to claim a child as a dependent on their tax return. However, that does not mean that the parent is entitled to claim the child for tax benefits. In general, to claim a child as a dependent, you must provide 51 percent or more of the support a child receives. The child must also live with you for 51 percent or more of the year. As long as the child lives with you for more than half of the year and you cover more than half of the expenses for the child, you can claim them on your taxes.
If both parents attempt to claim a child on their individual tax returns, the IRS will ask for proof from both parents to see which one meets the 51 percent requirement. Whichever parent can provide that proof will receive the tax benefits.
Still have questions? Talk to a certified tax professional now for a free evaluation
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Article last modified on August 8, 2019. Published by Debt.com, LLC
