One more exception worth exploring that hasn't been mentioned yet - if you become unemployed and use the withdrawal to pay for health insurance premiums while you're receiving unemployment compensation, that portion is exempt from the 10% penalty. Since you mentioned taking a sabbatical with no employment income, you might qualify for unemployment benefits depending on your state's rules and the circumstances of leaving your job. If you do, any portion of your 401k withdrawal used for health insurance premiums during that period would avoid the penalty. This could be particularly valuable if you're planning to get COBRA coverage or buy individual health insurance during your sabbatical year. Even if it only covers part of your $14,000 withdrawal, every bit helps reduce that penalty. The key requirements are: (1) you must be receiving unemployment compensation, (2) the withdrawal must be made during the year you received unemployment or the following year, and (3) you must actually use the money for health insurance premiums. You'll need to keep good records showing the connection between the withdrawal amount and your insurance costs. Worth checking if this applies to your situation before you make the withdrawal!

Great question about the 10% penalty vs. standard deduction! I went through this exact scenario two years ago during my career transition. You're correct that the $14,000 withdrawal would be covered by your $15,400 standard deduction, so $0 federal income tax. However, the 10% early withdrawal penalty ($1,400) is calculated separately on Form 5329 and added to your tax bill regardless of your income level or deductions. So yes, you'd still owe that $1,400 penalty even though your income is below the standard deduction threshold. The penalty isn't considered "income" - it's an additional tax that applies specifically to early retirement withdrawals. That said, after reading through all the excellent advice in this thread, I'd strongly recommend exploring the penalty exceptions before making your withdrawal. The medical expense exception mentioned earlier could be huge if you had any significant healthcare costs this year. Also, if you're planning any education during your sabbatical, those expenses might qualify for an exception too. Given the complexity and potential savings, a consultation with a tax professional familiar with early withdrawal strategies would probably pay for itself. There are clearly multiple angles to explore that could reduce or eliminate that $1,400 penalty entirely.

I see you're dealing with the classic 570/971 combination - I just went through this exact same situation a few months ago! The 570 code is essentially the IRS putting a temporary freeze on your refund while they conduct some type of review, and the 971 code means they've issued (or will issue) a notice explaining what they need from you. Based on your transcript, your math looks right - you should be getting a refund of $6,279 ($7,037 withholdings minus $1,658 tax liability). The review could be for identity verification, income verification, or just a random audit selection. Here's what I learned from my experience: watch your mail like a hawk for that CP letter (it should arrive within 2-3 weeks of the 971 date), respond immediately to whatever they're asking for, and keep checking your transcript weekly for updates. Once I submitted my requested documents, it took about 5 weeks for the 570 to reverse and my refund to process. It's stressful but most people do get their full refund - just with delays. Hang in there!

The 570 and 971 codes can definitely be nerve-wracking when you first see them! I had these exact same codes last year and went through the whole process. The 570 code means your refund is temporarily on hold while the IRS reviews something in your return - it's not necessarily bad news, just means they need to verify something before releasing your money. The 971 code with the October date means they issued (or will issue) a notice explaining what they need. Since it's dated 10-22-2024, you should be getting a letter soon if you haven't already. This could be anything from identity verification (very common) to them needing additional documentation about your income or deductions. Your refund calculation looks correct based on what you've shared - $7,037 in withholdings minus your tax liability should give you a substantial refund. The key is responding quickly to whatever letter they send you. In my case, it was just identity verification through their online portal, and once I completed that, my refund processed within about 6 weeks. Keep checking your transcript weekly for updates and watch your mail closely. Most people with 570/971 codes do get their refunds - it's just a matter of patience and responding promptly to their requests. You've got this!

I was in exactly your situation last month! Here's what worked for me step-by-step: 1. First, I checked my return status using the IL Where's My Refund tool 2. When it showed "processing" for 3 weeks, I called the IL DoR 3. The agent confirmed my return was approved but waiting in the deposit queue 4. My refund appeared exactly 2 days later The timing seems to be much better now than earlier in the season. My colleague just got his IL refund in 12 days from submission to deposit! I think they've worked through their backlog finally.

Thanks for starting this thread! I'm in a similar boat - filed my IL return on March 8th and still waiting. The divorce filing status change definitely seems to add extra processing time. I've been using the IL Where's My Refund tool religiously, but it's been stuck on "Your return is being processed" for over 3 weeks now. Based on what everyone's sharing here, it sounds like we're right in that normal window, which is reassuring. The batched deposit schedule on Tuesdays/Fridays is really helpful to know - I'll stop checking my account every single day! 😅 Has anyone noticed if the IL DoR sends any email notifications when your refund is actually approved and scheduled for deposit? Or do you just wake up to find it in your account?

Don't forget about platform fees when calculating your true income! If you're using sites like Fiverr, Etsy, or commission sites that take a cut, those fees are deductible business expenses. My first year I reported my full income without deducting the 20% platform fees and ended up paying way more in taxes than I needed to. Track ALL your expenses - even small stuff like reference subscriptions, brushes/assets you buy, etc.

Great advice everyone! As someone who just went through my first year of freelance art taxes, I can confirm that keeping detailed records from the start is absolutely crucial. One thing I wish I'd known earlier: if you're using digital art software subscriptions (Adobe Creative Cloud, Procreate, Clip Studio Paint, etc.), those are 100% deductible business expenses. Same goes for any online courses or tutorials you take to improve your skills - the IRS considers those legitimate business education expenses. Also, if you're doing client work that requires specific fonts, stock photos, or reference materials, keep those receipts! Even small purchases add up over the year. I tracked everything in a simple Google Sheet with columns for date, amount, description, and category (software, education, supplies, etc.). The self-employment tax rate is 15.3% on top of regular income tax, so definitely set aside about 25-30% of each payment you receive to cover both. It's better to have too much saved than to scramble at tax time!

Anyone know if we're supposed to enter these 1042-S values in local tax software? I use the Australian equivalent of TurboTax and there's nowhere obvious to put "foreign tax paid" from these forms.

Great breakdown from everyone here! As someone who's been through this exact situation, I want to emphasize that the 1042-S is really just a "receipt" showing what happened with your US-source income and withholding. The key thing to check is Box 7a (withholding rate) against your country's tax treaty rate. Australia has a pretty favorable treaty with the US - for most types of income like AdSense, the rate should be 0% or very low. If you're seeing 30% withholding, that means your W-8BEN wasn't properly processed or there was some other issue. One thing I learned the hard way: even if everything looks correct on your 1042-S, make sure you're reporting this income on your Australian tax return. The ATO can cross-reference this data, and you'll want to claim any foreign tax credits for whatever was withheld. Keep these forms with your tax records - they're essentially proof of income and tax paid that you may need later. If you're getting different withholding rates year over year for the same income source, that's usually a red flag that something needs to be fixed with your W-8BEN.