Owing for the tax year while in a chapter 13

[olivies]

DH forgot to adjust our witholdings last year- he thought he had, but apparently not. Grrrr.....So we owe $2800.

Now, the IRS is one of our creditors in the bankruptcy, from tax year 05 and 06 when he was self-employed. We are required to file a copy of the tax return with the trustee. I have no idea how we're going to manage to scrape together the $ to pay it in April, but I know we're supposed to pay any current tax due on time because we are in a 13, right?

And what kind of red flags will that raise for the trustee- who could assume we are flush with extra cash if we could pay that off, when in reality we're probably going to be selling furniture and power tools to try to pull that money together?

At least this helps our plan modification which we are pulling together, because when we adjust the witholdings we are going to see a decrease of about $400 a month income. (This is all assuming I still have a chapter 13 because nothing shows up yet in PACER for the motion that was supposedly filed by our attorney regarding our pending dismissal, and who knows if the courts and trustee will ok it...)

[UpsideDownMI]

FYI, in my district, owing money to the IRS while in a confirmed 13 is grounds for dismissal. The court has ruled that it should be treated as incurring new debt.

You should ask your attorney how you should handle this issue.

[UpsideDownMI]

FYI, in my district, owing money to the IRS while in a confirmed 13 is grounds for dismissal. The court has ruled that it should be treated as incurring new debt.

You should ask your attorney how you should handle this issue.

[newbie2]

I agree with UpsidedownMI. When the paycheck amount didn't decrease through the year that should have been a tip off that the withholding change wasn't made. You need to contact your attorney ASAP. I can't stress enought that during the life of the Chapter 13 your finances are under the control of the trustee. Come clean with this quickly and hopefully it can all be worked out.

[olivies]

I agree with UpsidedownMI. When the paycheck amount didn't decrease through the year that should have been a tip off that the withholding change wasn't made. You need to contact your attorney ASAP. I can't stress enought that during the life of the Chapter 13 your finances are under the control of the trustee. Come clean with this quickly and hopefully it can all be worked out.

He initially set the witholdings...using a handy online IRS calculator no less- to account for our move due to his job and to align with the sign on bonus he got. He thought he had changed it, after filing last year (we got a "refund" even though we used the IRS calculator recommendation, that the IRS of course kept). And we wouldn't have noticed a change in the direct deposit each pay period because it varies from paycheck to paycheck due to post-tax purchases (he works for a consumer food company and is able to purchase directly from the company so this varies depending on what we order each week) and thanks to a mid-year raise and pre-tax 401K contributions kicking in. So with all that, over the course of the year, the pay was very fluctual.

Speaking with our attorney to get advice about how to handle this- well, that's an Olympic feat in itself. She's the master of non-communicating.


But now I am boggled, because what I don't get is how this is "new debt" anymore than having a kid starting orthodontic treatment is with a $4K cost associated is. For example, we also came dangerously close to our 17yo earning the $3k+ income limit so we couldn't claim him as a dependent. So if the withholdings were correct, and he had surpassed that amount, we would still be up a creek due to no fault of our own. Even now, we can "guess" our witholdings correctly, but we have "new" credits coming up for this tax year like higher education costs, which we have no way of knowing at all what they will be yet. So I don't want to be told I'm "over" witholding to pad my income because next year we get a 2K refund due to those credits, you know? Or are we supposed to tell our son "no college for you, because we can't incur new debt so we can't have a tuition bill". It makes no sense is all.

[forgotten]

Or are we supposed to tell our son "no college for you, because we can't incur new debt so we can't have a tuition bill". It makes no sense is all.

I understand what you are saying... But if there are that many variables your best bet it to overwithhold, or to set money aside each pay period in case the tax man comes calling next year.

But yes, you can not incur new debt durring your CH13 without the permission of the trustee. You aren't going to get permission to get loans or budget for your sons college, he will have to get his own loans.

Edit: You can, or course, incur debt for necessary medical treatment. Even then, if its not an emergency, you should contact your attorney first.

[newbie2]

Olivies, you and your hubby need to sit down and figure out the withholdings together. You have so many variables with that paycheck (food purchases, etc) that it must be difficult, I can see that.

I remember now all the trouble you are having with your attorney. I'm sorry I even mentioned talking to her about this in the previous reply.

Also, in regards to the higher education costs -- your son will have to manage on his own, sad to say. There won't be wiggle room in your budget to pay for it (normally). If you do find a way to pay for it, the credit will show up on your income tax return and the trustee could rightfully question that.

I wish this was easier for you and your family.

[olivies]

Interesting....DH is going to have to place a phonecall to payroll.

His holiday bonus of $1475, they held no federal income tax. Great.

And, we dragged out all his old paystubs. The number of exemptions is the same, so he did in fact never change it- but the federal witholding is all over the place.

The taxable income is static up until they started 401K deductions. He got a raise of 2%, and they started 401K contributions of 2%. So that kind of washes. However, the end of year 2008 biweekly tax witholding was $297. January 2009 it was $283. The taxable income was the same for both. Then it flip flopped a few paycycles starting the end of February...one pay cycle it was 283, the next 257. Then back to 283. After about 4 pay periods of this, it stayed at 257. This makes NO sense to me. So yeah, $40 here, $15 there, not taxing his Holiday bonus (not sure why- because they taxed his performance bonus mid year) and it adds up. But what the heck is going on?

[LadyInTheRed]

I had an employer who gave an unexpected bonus because of a large payment from a client for whom we all worked very hard. Then, when the end of the year bonus came, the one I had come to expect after 9 years, the accountant called me and told me that my employer had withheld too little from the unexpected bonus because he wasn't happy with the net amount and he wanted to make a big impression. If the accountant hadn't called me and asked if I wanted the withholding increased for the year end bonus, I would have owed a lot of tax in April. As it was, that generous year-end bonus I had become accustomed to was very disappointing. It's illegal and self serving for an employer to under withhold from a bonus.

I'm sorry you have to deal with that when you already have enough problems with a non-responsive attorney. If she doesn't become more responsive VERY quickly, you should threaten to report her to your State Bar disciplinary board and follow up if she doesn't respond to your threat.

[olivies]

[QUOTE=LadyInTheRed;384511]It's illegal and self serving for an employer to under withhold from a bonus. QUOTE]

I "think" they withheld from the mid year bonus, which is the big one. But I have to go get that paystub and look specifically and calculate it, because maybe they under withheld? DH also got two small $50 referral bonuses. No tax was withheld from those either. As for the fluctuating amounts withheld over the year through March- I can't say for sure but I suspect some of it is from the Economic Recovery Act. The IRS website said it allows more money in the paycheck for wage earners, but certain filers will end up not having enough taxes taken out. Yeah, thanks- I had no idea. Wish payroll had sent out a little slip or email or something with a heads up. Our withholdings still need to be adjusted, but it shouldn't make a huge difference and at least I don't feel like a total schlubb because I now know about all these little things that added up. DH will check with payroll to see if he can "opt in" to have bonuses always taxed, and if not then we'll have to drop our exemptions even further to compensate.

[justbroke]

I do taxes (without a fee) for people each year. Mostly friends and family. Anyhow, this one married couple both had their withholdings at "Married Filing Jointly" with Exemptions set to 1. They ended up owing taxes this year! The reason is because of that extra "$25" or whatever it was a month in "tax relief" that the Administration put into people's paycheck. The problem is that a married couple really doesn't get double the tax reduction. So, both employers stopped collecting. The couple owes over $600 where they've never owed before in their life (and usually got back over $1,000/year). They are steaming mad!

I would warn married couples where both work, to recheck their tax withholdings, because there have been way too many surprises this year for many people. It's unfortunate that our Government put working people into this position.

[BuckeyeGuy13]

JB, we're one of those "lucky" ones... Can you comment on the oweing while in an active 13? Is the grounds for dismissal a district issue or is this generally a big no-no? Just a little concerned after reading this as we will owe about $700 this year.

[justbroke]

JB, we're one of those "lucky" ones... Can you comment on the oweing while in an active 13? Is the grounds for dismissal a district issue or is this generally a big no-no?

It's only grounds for dismissal if you don't pay it by April 15th (or whatever the last day to pay without penalty that year). In other words, if you owe $200, then you must pay the $200 by April 15th. Otherwise, you create a new debt and some Trustees don't like that.