Thanks for this advice. I reached out to our payroll department yesterday and they're "looking into it." Did your company initially deny there was an issue? I'm getting some resistance from our HR coordinator who keeps insisting their reporting was correct.

Yes, at first they denied anything was wrong! It took about two weeks of me and other affected coworkers persistently following up before they finally investigated properly. Their initial response was "our system doesn't make mistakes" but clearly it did. Ask if anyone else in the company received similar notices - that was what finally got them to take it seriously when they realized multiple people were affected. If possible, get a copy of your "Last Pay Statement" for the tax year in question - this should show your year-to-date earnings and withholdings that should match your W-2.

What happens if you miss the 30 day deadline? My notice arrived when I was traveling for work and I just opened it yesterday. The response due date is in 5 days!

This is super helpful! Would it make a difference if some of the additional amount in Code W might be employer contributions to the HSA? My employer doesn't contribute to mine, but I'm wondering if that could explain why some companies might have a higher number there.

Yes, that's a good question! If your employer makes contributions to your HSA, those amounts ARE included in Box 12 Code W along with your own contributions. So the total in Code W would be the combination of your contributions plus your employer's contributions. But in your case, since you said your employer doesn't contribute to your HSA, that's not the explanation. This is definitely an error where they're incorrectly including cafeteria plan premiums in Code W.

Don't worry, it's not a dumb question at all. If you've already filed, you should still try to get a corrected W2 from your employer. Once you receive it, you'd need to file an amended return (Form 1040-X). If the incorrect W2 makes it look like you over-contributed to your HSA, the IRS might send you a notice. In that case, you'd need to respond with an explanation and documentation showing your actual HSA contributions. It's better to be proactive, but you won't get in serious trouble - worst case would be having to pay a 6% excise tax on any "excess contributions" until the issue is resolved.

That's really interesting - I hadn't even considered that possibility. She does only work through this one coordinator who tells her exactly when to show up, what to wear, and even provides a specific set list for each event. The coordinator also handles all client interactions and payments. Would those factors suggest she should be an employee?

Those factors definitely suggest she might be misclassified! When the business controls the when, where, and how of the work, that strongly indicates an employment relationship rather than independent contractor status. Other indicators include if they provide equipment (though you mentioned venues have the pianos), if she can't work for competitors, and if she's economically dependent on this one business. If misclassified, filing Form SS-8 with the IRS would request a determination of worker status. She could also file Form 8919 to report her share of uncollected Social Security and Medicare taxes. This would potentially reduce her tax burden since she'd only be responsible for the employee portion (7.65%) rather than the full self-employment tax (15.3%).

Unfortunately, you do have to file Schedule SE if your net earnings from self-employment are $400 or more. There's no legal way to "skip" the self-employment tax as it funds your future Social Security and Medicare benefits. However, you can potentially reduce your self-employment income by making sure you're claiming all legitimate business deductions on Schedule C first. Things like your computer, portion of internet/phone, home office, software subscriptions, and professional development can all reduce your net profit subject to SE tax.

Thanks for the honest answer. Guess I just needed someone to confirm I can't avoid it. I'll look into those deductions for sure. Do you know if the SE tax is calculated before or after regular income tax? Just trying to understand the full picture of what I'm paying.

Thank you! For the Form 8949 approach, do I still need to mail in paper forms or can I e-file my return with the summarized transactions? And should I include some kind of statement explaining what I did?

You can still e-file with summarized transactions - that's not a problem. When you use the summary method, you should include a statement with your return that says something like "Multiple transactions are reported on a single line. Details available upon request." This covers you from an IRS perspective. I'd also suggest keeping a detailed spreadsheet with all your individual transactions that ties to your summary totals. This becomes your supporting documentation if questions ever come up. The most important thing is making sure your total gains/losses are accurate, especially with proper handling of wash sales and correct cost basis.

The transaction limits are actually more about the software companies than the IRS. The consumer versions of tax software have these limits because processing thousands of transactions is computationally expensive. Professional versions don't have these limits but cost a lot more.

I hadn't even thought about business licenses! Is that something I need even if I'm just doing occasional art markets and some online sales? How do I find out what my local requirements are?

Even for occasional sales, most places require some form of business registration. It varies widely by location though. Start by checking your city's website for "business license" or "business registration" - most have simple online forms. Your county may also have requirements, especially if you're in an unincorporated area. The good thing is that for small creative businesses, the fees are usually pretty reasonable - mine was only $85 per year. The sales tax exemption on supplies makes it worth it alone. Also check if your state requires a general business registration or DBA ("doing business as") filing if you're operating under a business name rather than your personal name.

This is a really smart approach! How did you decide on those specific percentages though? Are those standard or did you customize based on your business?