That middle ground approach sounds reasonable. I really don't want to blow up my family relationships, but I also can't continue like this. Do you think it would be reasonable to ask my relative to start properly employing me going forward, but not worry about the past years? Or am I legally obligated to correct previous years too?

You technically have a legal obligation to file taxes for all years where your income exceeded the filing threshold. However, from a practical standpoint, many people focus on moving forward correctly while addressing past issues gradually. The IRS generally looks more favorably on taxpayers who voluntarily come into compliance before being caught. If you decide to start filing properly from this point forward, you reduce additional non-compliance issues. Then you might consider filing amended returns for the previous three years (that's typically how far back the IRS looks unless they suspect fraud).

This is so true. My cousin worked under the table for years at a construction job. He fell off a roof and broke his back. No workers' comp, no disability, nothing. His boss completely abandoned him and he ended up on Medicaid with no income. It's been 5 years and he's still fighting for any kind of compensation while being permanently disabled. Don't wait until something happens!

What exactly counts as MAGI for the ACA premium tax credit? Is it just the AGI from the tax return or are there adjustments? I had some student loan interest and moving expenses last year if that matters.

For ACA premium tax credit purposes, MAGI is your AGI plus certain additions: non-taxable Social Security benefits, tax-exempt interest, and foreign earned income. Student loan interest deductions don't affect your MAGI calculation since they're already accounted for in your AGI. Moving expenses generally don't factor into the MAGI calculation either, as long as they're legitimate deductions on your tax return. The key is focusing on which months you were legally considered a dependent - that's what determines whether your income counts toward your mom's household income for premium tax credit purposes.

I used TurboTax Premier and it handled my similar situation pretty well. It asks month-by-month questions about household composition and walks you through the premium tax credit calculations. Just make sure you have your 1095-A form handy and know which months your status changed.

Isn't doing quarterly payments a lot of extra work though? And how would someone even figure out how much to pay? I feel like making the employer fix their mistake is better than creating more work for the employee.

It's actually not too complicated. The IRS has worksheets on the 1040-ES form that help calculate the proper amount. Basically, you estimate your annual income, determine your expected tax, and divide by four. I agree the employer should fix the issue - that's definitely the right long-term solution. But quarterly payments are a good backup plan if the employer continues to drag their feet. It gives the employee protection from underpayment penalties while they fight the larger battle. Better to be proactive than end up with a huge tax bill and penalties next year.

This happened at my company too! Our entire department had the same issue because someone doing a mass upload checked "exempt" for an entire batch of employees. Took months before anyone noticed because people don't always check their paystubs carefully.

This is really important! I got hit with a surprise $400 tax bill my first year selling online because I didn't know about self-employment tax. Even small businesses have to pay it.

That's a good point! I did confirm with my plan administrator that they accept IRA rollovers, but I'll double-check there aren't any special restrictions. Our 401k plan actually has pretty decent investment options (Vanguard institutional funds with low expense ratios), so I'm not too worried about that part. The main goal is clearing out the pre-tax money so I can do backdoor Roth contributions without dealing with the pro-rata rule mess every year.

Glad to hear you've already checked on the rollover acceptance! That's great that your plan has good investment options too - that makes the decision much easier. You're absolutely right to focus on clearing out the pre-tax money for clean backdoor Roth contributions. The pro-rata rule calculations are a pain to deal with annually. I've had clients who avoided backdoor Roth conversions for years simply because they didn't want to deal with the paperwork complexity of having mixed funds.

This varies by 401k plan, so you'll need to check your specific plan documents. Most plans that have minimum balance requirements apply those rules to all money in the plan, including rollovers. The $5,000 threshold is pretty common. However, they typically can't "cash you out" of rollover funds the same way they might with small employer contribution balances. Instead, if your balance falls below their minimum, they might roll it to an IRA automatically rather than sending you a check. If you're actively employed and making contributions through payroll, you'll likely stay above any minimum threshold naturally as your contributions come in.