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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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If we make 160000 a year how much tax will we owe

Customer Question

Last year we made 94000 and I have cashed IPERS so next year will be 160000...so what is my estimated tax I will owe?
Submitted: 9 years ago.
Category: Tax
Expert:  Lev replied 9 years ago.

Assuming you had retirement plan under IPERS - http://www.ipers.org/ - there are two issues in connection with this distribution.

  • early distribution penalty - that is 10% - in general it is due if you are below 59 1/2. Some exemptions apply.
  • because taxes on contribution were deferred - the distributed amount will be taxable income. The tax rate depends on the total, income, filing status, etc

There are certain exceptions to this penalty. The following five exceptions apply to distributions from any qualified retirement plan:

  1. Distributions made to your beneficiary or estate on or after your death.
  2. Distributions made because you are totally and permanently disabled.
  3. Distributions made as part of a series of substantially equal periodic payments over the life expectancy of the owner or life expectancies of the owner and the beneficiary. If these distributions are from a qualified plan other than an IRA, you must separate from service with this employer before the payments begin for this exception to apply.
  4. Distributions that are equal to or less than your deductible medical expenses, that is, the amount of your medical expenses that is more than 7.5% of your adjusted gross income. You do not have to itemize to meet this exception.
  5. Distributions made due to an IRS levy of the plan.

The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

  1. Distributions made to you after you separated from service with your employer, if the separation occurred in or after the year you reached age 55,
  2. Distributions made to an alternate payee under a qualified domestic relations order, and
  3. Distributions of dividends from employee stock ownership plans.

The following exceptions apply only to distributions from IRAs:

  1. Distributions equal to or less than your qualified higher education expenses,
  2. Distributions made to pay for a first-time home purchase, and
  3. Distributions made to pay health insurance premiums if you are unemployed.

Please review if any related to your situation.

To estimate your tax liability we need to know your filing status? any dependents? are you using standard deduction or itemize? - what would be estimated amount? any other deductions you use?

Please let me know if any clarification needed.

Lev and 2 other Tax Specialists are ready to help you
Customer: replied 9 years ago.
I am 47. I know about the 10% + 20% so the total I am receiving is 87,000. We have two dependents. One is in her last year in college and the other will be attending college as a freshman this year. We will be filing married, jointly.
Expert:  Lev replied 9 years ago.

To estimate I would need these information:

  • do you itemize? - is so what is the amount?
  • is your older dependent below 24?
  • is $94,000 - your combined gross wages? - please confirm.
  • the gross amount of distribution is $87,000 before taxes? - please confirm.
Customer: replied 9 years ago.
Reply to Lev's Post: 87,000 is the estimate I will recieve after both 10% and 20% that they withhold My older child will turn 23 this august and then be done. The 94,000 is combined gross wages. We do not itemize except for education. Medical we do not have enough. Does that help?
Customer: replied 9 years ago.
Sooo, because I accepted this you will not respond?
Expert:  Lev replied 9 years ago.

So, I estimated that your gross distribution will be $125,000.

This will push your income to $94,000 + $125,000 = $219,000 and your tax bracket will be 28%

your early distribution penalty will be 10% - $12,500

your income taxes (assuming standard deduction - $10,700 for 2007, two dependents, married filing jointly) - ~$50,000. State taxes if any - will be an additional

Because of high adjusted gross income - you will not be eligible for the educational expenses deduction.

Without distribution - your federal tax liability would be ~$12,700. - means your additional taxes would be ($50,000 - $12,700) + $12,500(penalty) = ~$49,800 plus educational credit.

Please think twice before taking distribution.

Customer: replied 9 years ago.
So, are saying the 87,000 is going to cost me 50,000 in extra taxes? I have done this to pay off credit card debt and school debt. So...I will end up spending or borrowing to pay off tax debt next year?
Expert:  Lev replied 9 years ago.

I assumed that you are going to take $125,000 gross distribution that would cost you ~$50,000 in additional taxes - this is correct. In additional to 10% penalty - you will be pushed into higher tax bracket.

By the way, you may avoid 10% penalty for amount you spend for qualified higher education expenses. To do so - you should roll over funds from your account to IRA and then take a distribution - see exemptions above.

Please plan your distribution wisely.