Remember how I was celebrating having gotten our savings account back up to four figures? It was nice while it lasted.
An unpleasant discovery
The other day Mom mentioned cutting a check for unemployment tax. I thought that was strange because I’d never owed unemployment tax. Given that she also has an S-corp, it seemed weird that she owed something I didn’t, so I went online to look into it and… Well, I think you can see where this is going.
Turns out that I should’ve been paying unemployment tax — federal and state — for the past six years.
I’m mortified. I pride myself on always paying taxes and not complaining (too much) about it. I like paved roads and good school systems, therefore I pay taxes. It’s embarrassing to think that I’ve been evading taxes, even accidentally.
Ignorance wasn’t bliss
The fact is that no one ever told me this was something I owed.
The CPA who set up my S-corp didn’t tell me what forms I’d need to file moving forward.
The CPA who did my 2010 tax forms advised me not to take a salary that first year. So she didn’t check to make sure I knew what quarterly forms to file — nor did she send any advice along with my completed yearly return even though she knew I’d need to start filing quarterly forms moving forward.
When I called the IRS that second year, panicked because I hadn’t filled out my FICA forms, the agent gave me some excellent advice; but he didn’t think to see whether I was aware of any other quarterly forms I was responsible for. Not technically his responsibility, I suppose, but I really wish he’d guessed at the full scope of my cluelessness.
And when I finally went back to a CPA the third year of my business, she still only dealt with year-end stuff. So there was no way for her to know that my “Taxes paid” figure didn’t include unemployment tax.
Meanwhile, it never occurred to me that I’d be eligible for unemployment. I’m my only employee, so my entire company consists of paying myself. It’s not like I could ever be fired, and the company doesn’t have enough operating costs to ever need to go belly up. And if I somehow lost my current job, I’d use my S-corp for freelance writing.
In short, there’s no chance of my ever collecting unemployment. So why would I think I was subject to the unemployment tax? (Answer: Because you’re a W-2 employee, dummy.)
This is all incredibly aggravating because, had I known I owed it, I’d have happily paid the $500 a year. Well, I mean… Not happily. But I’d have paid it. Instead, I’m having to pay it all at once — plus penalties and interest.
FUTA is FUBAR
Now that I know this is an issue, I’ve started the process to get it taken care of. I contacted the Arizona Department of Economic Security on Friday, and they emailed me the form I need. I’m mailing it back today, and they’ll send me the determination that I’m indeed subject to state employment tax. Then I’ll have to talk to Collections about the back taxes.
I actually already called the Collections department to find out just how screwed I am. I was pretty freaked out — it didn’t help that I’d missed a day of my meds thanks to refill issues — and calling was the only way to quell the overwhelming anxiety.
Unfortunately, the woman said she couldn’t begin to compute the penalties until I had received the determination. But she was very sympathetic because, as she said, she could hear the panic in my voice. She gave me her direct number and told me to call as soon as I get my determination back.
She also said that I would get the chance to write a letter pleading my case. I’d be allowed to explain why I hadn’t paid the taxes until now and request that the penalties be waived. She and her supervisor would review it together, so there’s at least a small chance I could get those removed. Unfortunately, I’m pretty sure I’m stuck with the interest charges.
There’s still the matter of federal taxes too. That’s significantly lower because you get a credit for the amount you pay the state. Once again, I may be able to get penalties waived but from what I can tell it’s a lot less likely. Even if the penalties go away, I have to contend with daily compounded interest. So it looks like I’ll owe around $800, but that’s a pretty rough estimate. I’ll have to wait for the IRS’s determination on that one.
Whatcha gonna do?
In the end, there’s nothing for it but to pay. It’s money I owe, and that’s that.
I’m mailing off the state form today, and I’ll be calling the IRS today or tomorrow to get that side of things started. Then all that’s left is to wait for the bad news.
Well, to wait for the bad news and to hope that I get a bonus again this year. And that it’s the same amount as last year. Unfortunately, I’m not optimistic about that. Every time we add an employee, everyone’s bonus lowers a bit.
Even if the bonus is the same amount, it won’t be enough to cover the full cost of the taxes. Still, any little bit will help offset how much we have to take out of the emergency fund, which is going to have to get raided for this.
On the bright side, it’s a big chunk o’ change to write off under next year’s corporate expenses. And on a (slightly) less grim note, it’s excellent motivation for us to take a hard look at our spending and start trimming.
Have you ever owed the IRS long-term money?