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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4491
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. My question is about federal tax I can expect to pay in

Resolved Question:

Hi. My question is about federal tax I can expect to pay in 2013, because I took an early withdrawal on my federal Thrift Savings Plan (TSP - the gov't 401K thing) of 90,000. I know there is a 10% penalty, but they did not withhold it. I assume I have to pay that when I file my 2013 taxes, which is $9000, but I don't know if the taxable portion of the 90K is the full 90K, or 81K. I am not eligible for any of the penalty exceptions.

In 2012 and last couple years, my income and deductions have been about the same, except now I have the 90,000 I withdrew from the TSP. AGI 178,000. Taxable income: 135,000. Amount of federal tax paid in 2012: 31,000. I am single. Last year, I had 40K withheld in federal tax, but actually paid 31K and got a refund.

So assuming all income and deductions are the same for 2013, with this 90K withdrawal added to my income, what ballpark federal income tax can I expect to pay in 2013? Also, I live in WV, and I don't know if WV taxes the full 90K too.

I am asking this to find out how much income tax I can expect to pay, and how much of that 90K I should withhold on my own so I break even in paying tax. Last year, 40K was withheld, but I actually paid 31K and got a refund.

Help! Thanks....
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

Hi,

NPVAdvisor :

YOu cartainly understand everything.... Lets do an estimate of your taxes for 2013 .... hang on just a sec

NPVAdvisor :

I'll strt y doing a basic calculation, assuming NO withholding, then we can apply that to bet it out

NPVAdvisor :

Can you give me the total expected wages and other income (NOT including the 401(k) distribution)?

Customer:

Hi. Appreciate your help. I expect income to be same as last year, 178K.

Customer:

I expect my 'taxable income' to be the same as last year, if I didn't take this 90K. Last yrs taxable income, 135K

Customer:

I am single, no other deduction or business expenses or investments or other. I'm a fairly simple tax case!

NPVAdvisor :

ok... the mode I use starts with gross income, so you'll see the 178 + 90 ... then we'll add the 9000 penalty, then the next step will be to net ut any withholding... just one second here

NPVAdvisor :

Now, what will be your annual pre-tax contributins tTO the 401(k) this year?

NPVAdvisor :

another piece of info the model needs is whether you use the standard deduction or itemize

Customer:

Only 1100 added to 401K.

NPVAdvisor :

ok great

Customer:

I itemize. Only charitable contributions and mortgage interest, and real estate taxes and pers property tax. Nothing else.

NPVAdvisor :

can you give me a ballpark number for that?

NPVAdvisor :

178 - 135?

Customer:

My total deductions last year were $39,100 if that helps. This year should be about the same.

Customer:

Does that help?

NPVAdvisor :

yep, just a sec now

Customer:

That is itemized deductions off that worksheet.

NPVAdvisor :

That'll get us close

Customer:

ok.....

NPVAdvisor :

OK, here are the raw numbers, that is ... simply adding the distrbution to your ordinary income (not yet adding the 9000 penalty OR subtracting any withholding)

NPVAdvisor :























































Gross income$268,000
Qualified plan contributions-$1,100
Adjusted gross income=$266,900
Standard/Itemized deductions-$38,560
Personal exemptions-$3,276
Taxable income=$225,064
Tax liability before credits$58,402
Child tax credits-$0
Estimated tax liability=$58,402
Taxes withheld-$0
Tax shortfall=$58,402
NPVAdvisor :

Now, add 90000 for the penalty portion of the tax (nd subtract any W-2 withholding + anything withheld against the TSP distribution)

NPVAdvisor :

SORRY! add $9,000

Customer:

I expect, based on last paycheck, to have 43K federal withheld.

Customer:

that is w-2 withholding

NPVAdvisor :

Was anything withheld AT ALL on the TSP distr?

Customer:

They will automatically withhold 10%, which is 9000. And I know that is not enough.

Customer:

So, I figure 43K withheld from basic pay, then 9000 for the withdrawal, total 52,000. So...how much more do I need to withhold to cover it all, if anything. That is the botXXXXX XXXXXne question.

NPVAdvisor :
























































Estimated Tax Analysis
Gross income$268,000
Qualified plan contributions-$1,100
Adjusted gross income=$266,900
Standard/Itemized deductions-$38,560
Personal exemptions-$3,276
Taxable income=$225,064
Tax liability before credits$58,402
Child tax credits-$0
Estimated tax liability=$58,402
Taxes withheld-$52,000
Tax shortfall=$6,402
Customer:

Got it. So I should withhold about 7K more, it sounds.....

NPVAdvisor :

ok this is everything. but the 9000 additional penalty, so 9000 + 6402 = 15402

NPVAdvisor :

(Don't shoot the messenger) but the model doesn't add the additioanla 10% penalty, i was just able to add the additional 90000 as orfinary income ... so we needed to add the 9000 on top of any tax shortfall

Customer:

Ok gotcha. Am I technically taxed on the entire 90K, or only 81K since I gotta pay that 9000 penalty?

NPVAdvisor :

90,000 THe withholding on it DOES subtract from the tax liability overall, but all qualified plan distributions are ordinary income

NPVAdvisor :

and then the additional 10% tax, of course, if you are under 59 and 1/2

Customer:

Got it. I am under 59. Last question, are you able to tell if the state of WV will also tax that 90K in full?

NPVAdvisor :

If you'll notice in the model the total withholding was 52000 (that's the 43000 + the 9000)

NPVAdvisor :

Yes, hag on just a sec and I'll look that one up

NPVAdvisor :

typically, the state will tax it as ordinary income too but NOT charge the additional 10%

NPVAdvisor :

let me get that for you

NPVAdvisor :

yes, "The beginning point for West Virginia taxation is federal adjusted gross income. Therefore, any amount of the IRA distribution or pension income that is taxable and included in federal adjusted gross income is taxable on the West Virginia income tax return."

NPVAdvisor :

Also for WV: Tax Rate Range: Low – 3%; High – 6.5%
Income Brackets: * Lowest – $10,000; Highest – $60,000
Number of Brackets: 5
Personal Exemptions: Single – $2,000; Married – $4,000; Dependents – $2,000
Standard Deduction: None

Customer:

Thus, I likely need to withhold additional for state taxes too.....

Customer:

sucks to be me !!! lol

NPVAdvisor :

yep, sorry .. (don't know about that sucks to be you part ... you're doing OK) not a bad problem t have (making too mch money!) :)

NPVAdvisor :

Just found this, many states provide an estimator, WV does not, but this'll get you there:

NPVAdvisor :

Personal income tax


West Virginia collects income taxes from its residents at the following rates (for single, head of household and married filing jointly taxpayers).



  • 3 percent on the first $10,000 of taxable income.

  • 4 percent on taxable income between $10,001 and $25,000.

  • 4.5 percent on taxable income between $25,001 and $40,000.

  • 6 percent on taxable income between $40,001 and $60,000.

  • 6.5 percent on taxable income of $60,001 and above.




Read more: http://www.bankrate.com/finance/taxes/state-taxes-west-virginia.aspx#ixzz2Z2HDYA14
Follow us: @Bankrate on Twitter | Bankrate on Facebook

Customer:

Yeah I know, I am not doing poorly at all. I had to deal with the aging parent thing this year, all his medical bills and assisted living and all kinds of stuff, got me seriously far in debt. So I want to take this money out to pay those debts.

Customer:

Ok, thanks for your help, I do appreciate it....

NPVAdvisor :

Understand ... depending on interest rate cost, might make a lot of sense (certainly let you sleep at night)

Customer:

yeah it sure does. And Im upside down on mortgage like everyone else in WV, so this was my only choice....

NPVAdvisor :

You're welcome (dealing with some of the same issues right now with my mom, so can relate)

Customer:

home equity loan wouldn't work

Customer:

Oh its hard! My dad lingered on for nearly 3 yrs. He had no money or pension, and I am actually in the DC area (WV panhandle), and assisted living and all that was 7000 a month! So good luck dealing with your mom. You are not alone....

NPVAdvisor :

Yep, probably stating the obvious here, but increasing the contributions into the plann as you can will help you get back to where you were with the least paid (sometimes if you pay yourself first, but increasing that savings a little bit, you don't really miss it)

NPVAdvisor :

Thank you

Customer:

thanks again.....

NPVAdvisor :

Thanks goodness the cost isn't as high here

NPVAdvisor :

Yw

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4491
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 7 other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.

Thanks for the rating, Ken!

Enjoyed working with you.

Lane

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Lane
Lane
JD, MBA, CFP, CRPS
3630 Satisfied Customers
Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986