How Peace Corps Caused Me to Owe Taxes

Blog / Tuesday, March 4th, 2014

See that title? That was trying to draw people in by crying wolf. It worked, I hope. But really, Peace Corps is the reason I  owe taxes of about $4,500 right now, sorta. It’s a mix of a few things and none of it really can be resolved other than by me cutting a check.

The issue started mid-December 2012 when I started my current position as a project manager for a translation agency. I had to fill out my W4 and I’m going to be the first person to say this, but tax language is hard to understand. Nevertheless, I think I navigated them quite well. Even to the point, which caused the problem, that read as follows:

I claim exemption from withholding for 2013, and I certify that I meet both of the following conditions for exemption.
• Last year I had a right to a refund of all federal income tax withheld because I had no tax liability, and
• This year I expect a refund of all federal income tax withheld because I expect to have no tax liability.

I was told that if both these statements were true I should write, “EXEMPT” in the box. They were both true due to the Peace Corps and the timing of when I started the job. I wrote EXEMPT in the box. It was all true.

But then the new year came about and really, this form should have been updated. It wasn’t because I forgot about the line and my boss didn’t really process that line because he sent the form off to his accountant.

There should have been a red flag when I looked at my pay stubs and didn’t see a line item for FICA. But since I hadn’t seen a pay stub since before Peace Corps, it didn’t really dawn on me. I also had line items for Social Security and Medicare, so I figured everything was normal.

Jump to this past weekend when I sat down to file my taxes, expecting to see a hefty return (I had estimated my return with Turbo Tax’s online calculator). I started entering my information only to realize that there was no federal or state tax withheld. That was not a good afternoon. I did manage to bring the amount owed numbers down a bit with deductions, but not nearly enough.

I came into work this week to talk to me boss about figuring out what the issue was and how to get it fixed. He checked his records and was just as confused about why as I was. He got the accountant on the phone and they worked through what the issue was. That exempt thing.

Now I fully understand that it’s my obligation to pay back the taxes, and I’m not upset about that other than it throws off my plan to have my student loans paid off by the end of the year. I’m upset that this wasn’t brought to my attention before. To me, that line that I wrote EXEMPT on should only have applied to the calendar year it was filled out before it needed to be reviewed for the following year. I believe that this was an oversight from the accountant which caused the problem.

Anyway, feel free to give to my tax fund, it’s going to be a tight couple of months to gather the cash to pay it back, but after that I should be good (thought my student loan payments will be less because my checks will be less as they’re going to start paying taxes).

5 Replies to “How Peace Corps Caused Me to Owe Taxes”

  1. That’s irritating, especially since it should’ve been brought to your attention earlier. I’m assuming that the accountant is someone that your employer pays to do a job, and presumably to do it well. Obviously we’re all only human, but that definitely seems like, as you said, an oversight on the part of the accountant. Good luck with that… just make sure that when I come to visit, you have enough money to go in on an epic bloody mary.

    1. Irritating is probably the best single word description. The problem doesn’t really affect my boss as far as I can see and it would be a hassle to switch accountants, so I don’t see this oversight being fixed for future, albeit, niche problems.

      Don’t worry about the Bloody Mary Fest, I already have a jar of coins to drop my change into.

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