2 One important thing nobody has mentioned - there are situations where filing separately can protect you. If ur spouse has shady tax history or might have errors you don't know about, filing separately means you're not liable for their mistakes. My friend's husband didn't report some crypto gains and she got dragged into the mess even tho she had no idea! Just something to consider beyond just the $$$ amount.

Great discussion here! I'm a CPA and wanted to add that while the software comparison tools mentioned are helpful, they sometimes miss nuanced situations. For example, if one spouse has significant medical expenses (over 7.5% of AGI), filing separately might allow that spouse to deduct more medical expenses on a lower individual income vs. the combined income when filing jointly. Also, don't forget about state tax implications - some states don't allow you to file separately if you filed jointly federally, or vice versa. Always check your specific state's rules before making the final decision. The tax software tools are great starting points, but for complex situations (multiple income sources, significant deductions, rental properties, etc.), it might be worth consulting with a tax professional who can run scenarios beyond what the basic comparison tools show.

You're absolutely right to be frustrated about this! What makes it even more maddening is that the IRS has the authority to waive interest and penalties in cases of "reasonable cause," but they almost never extend that same flexibility to taxpayers who've been essentially forced to give them interest-free loans through overwithholding. I've been tracking this issue for years, and the numbers are staggering. The average tax refund is around $3,000, which means millions of Americans are collectively giving the government billions in interest-free loans annually. If you calculate what that money could earn in even a basic high-yield savings account (currently around 4-5%), we're talking about serious money that taxpayers are losing out on. The irony is that the IRS actively encourages people to overwithhold through their messaging around "getting a refund" rather than educating taxpayers about optimizing their withholding to break even. It's in their financial interest to keep this system exactly as it is.

The frustration is totally justified! What's particularly galling is that this asymmetric interest policy isn't just unfair - it's actually quite profitable for the government. The Treasury Department essentially gets to use taxpayer overwithholding as a massive, interest-free financing mechanism for government operations throughout the year. I did some quick math on your $3,400 excess withholding: if that money was spread evenly throughout the year (about $283/month), and you had put it in a basic 4.5% high-yield savings account instead, you'd have earned roughly $77 in interest by tax time. Multiply that across millions of taxpayers, and we're talking about billions in lost opportunity cost. The real kicker? When the government borrows money through Treasury bonds, they pay interest rates that are often higher than what most savings accounts offer. So they're essentially getting a better deal from us (0% interest) than they give to actual investors who lend them money voluntarily. Your best move is definitely to adjust that W-4 and put those extra dollars to work for YOU instead of Uncle Sam. The peace of mind from a smaller refund is worth way less than having access to your own money throughout the year.

I work as a tax preparer and see this confusion about Roth IRA dividends constantly during tax season. The bottom line is that dividends earned within a Roth IRA cannot be separated from other earnings for withdrawal purposes - they all get lumped together as "earnings" by the IRS. Here's what happens: When dividends are paid inside your Roth IRA, they increase your total earnings balance. If you withdraw ANY amount beyond your contributions, the IRS treats it as coming from earnings first (after contributions are exhausted), regardless of whether you think you're "just taking the dividends." The 5-year rule clock starts January 1st of the tax year for your first contribution. So if you first contributed in 2020, your 5-year period ends January 1, 2025. You need both the 5-year rule AND to be 59½ to take earnings (including dividends) tax and penalty-free. One thing I tell clients: if you need current income from investments, consider keeping dividend-paying stocks in a taxable account instead, where you can access the dividends immediately and only pay the qualified dividend tax rate (usually 0-20% depending on your income).

Just want to echo what Paolo said about keeping dividend stocks in taxable accounts if you need current income. I made this switch last year after getting burned by early withdrawal penalties, and it's been much better for my cash flow situation. One thing that really helped me understand the Roth IRA ordering rules was looking at Form 8606 instructions on the IRS website. It clearly shows how withdrawals are treated: contributions first, then conversions, then earnings (which include all dividends, capital gains, and other growth). There's no way to cherry-pick just the dividends. For anyone still confused about this, I'd recommend reviewing your annual Roth IRA statements to see the breakdown between contributions and earnings. Most brokerages show this clearly, and it helps you understand exactly how much you could withdraw penalty-free if needed (just the contribution portion). The tax code isn't intuitive here, but once you understand that ALL growth inside a Roth IRA gets treated the same way regardless of its source, the rules make more sense.

I'm surprised nobody mentioned quarterly estimated taxes yet! If you're making money from self-employment, you might need to make quarterly tax payments to avoid penalties. The IRS expects you to pay taxes throughout the year, not just at filing time.

As someone who went through this exact situation a few years ago, I can share what worked for me. First, yes you do need to report this income since you're over the $400 threshold for self-employment. But don't stress too much about the bank deposits - for amounts under $10k, they typically won't question where the cash came from. Here's what I wish someone had told me: start keeping better records NOW. Create a simple spreadsheet with dates, jobs, and payments. Also track your expenses like gas, equipment, supplies - these deductions can significantly reduce what you owe. I ended up saving about $400 in taxes just by deducting my lawn mower, gas, and maintenance costs. For filing, you'll use Schedule C and Schedule SE along with Form 1040. The self-employment tax is about 15.3%, but you might not owe income tax depending on your total income. Since your parents claim you as a dependent, you still need to file your own return. Consider it good practice for adult life! Most tax software can handle this situation, or you might want to have your parents help you through it the first time.

This has been such an eye-opening discussion! I'm in a very similar boat - making about $85k and consistently getting $2,800-3,200 refunds each year. I never really thought about it as giving the government an interest-free loan until reading through these comments. I'm definitely going to try the approach of putting the standard deduction amount ($14,600 for 2024) in Step 4(b) of my W-4. That seems like the most straightforward solution for someone like me with a single job and no itemized deductions. Quick question for the group - if I make this change now in late 2024, will it cause any issues with my withholding being too low for the remainder of the year? Should I calculate a prorated amount based on remaining pay periods, or is it safe to use the full annual standard deduction amount even if I'm making the change partway through the year? Thanks to everyone for sharing their experiences - this community is incredibly helpful for navigating these tax complexities!

This thread has been incredibly helpful! I'm dealing with a similar overwithholding situation - making about $102k and getting back around $4,200 each year. One thing I wanted to add for anyone considering these adjustments: make sure to factor in any life changes that might happen during the year. I made the mistake last year of adjusting my withholding in March, then got married in September and completely forgot to update my W-4 again. Even though my spouse and I file separately, the change in filing status affected my tax situation. Also, for those mentioning the IRS Withholding Estimator - I found it works much better if you have your most recent pay stub and last year's tax return handy when you use it. The tool asks for pretty specific information about year-to-date earnings and withholdings. One last tip: if your employer uses a payroll service like ADP or Paychex, you can often submit W-4 changes online through their employee portal, which tends to process faster than paper forms through HR.