Do people really get refunds over 10K?

[badatmath]

So annoying that I have to give an interest free loan to the gov just because of the weird "supplemental" rate. I guess the IRA won't find it suspicious if its common. My taxes have always been pretty close to being over/under.

 

[SevenUp]

At one time, my 401(k) administrator required 20% withholding on all withdrawals. I think that's been amended. BUT, that led to a nearly $10K refund once. Not so much any more, though.

From 401k Resource Guide Plan Participants General Distribution Rules | Internal Revenue Service:

Any taxable distribution paid to you is subject to mandatory withholding of 20%, even if you intend to roll the distribution over later. If the distribution is rolled over, and you want to defer tax on the entire taxable portion, you will have to add funds from other sources equal to the amount withheld. You can choose to have your 401(k) plan transfer a distribution directly to another eligible plan or to an IRA. Under this option, no taxes are withheld.

 

[Surewhitey]

Guilty by $8k this year. We paid extra at eoy to get additional $5k paper I-bonds & decided not to as CD rates looked more attractive.

 

[athena53]

I had an $8K refund in 2019. Two large unpredictable/uncontrollable quantities: mutual fund CG distributions and a "sector rotation" of ETFs (which I've since gotten rid of- too complicated) where you pretty much got in and out of various sectors when the "experts" decreed it was time. You could elect not to make changes but then you're paying for advice you don't use. As I said...I'm outta there.

Capital gains and losses on my own trades are more predictable and controllable but bull and bear markets are beyond my control.

This year I did a major Roth conversion and had still overpaid (based on 2021 liabilities Safe Harbor) but not that much.

 

[ERD50]

So annoying that I have to give an interest free loan to the gov just because of the weird "supplemental" rate. I guess the IRA won't find it suspicious if its common. My taxes have always been pretty close to being over/under.

I think (and I think others are saying the same), that there is no 'supplemental rate".

As you have been told, your W-4 is based on you making that amount throughout the year. So if you got that "extra" PTO, on top of a full year salary, that could push you into the higher bracket that you were taxed at.

But apparently, you didn't work the whole year, so your actual total income and tax rate was lower. But...

imagine you did get offered, and took that other job with little time off. Then you would have a full year salary, and the PTO would be on top of that, and it would have been correct to tax it at that higher rate, and it all would have come out pretty close. If they didn't w/h based on that, you'd be here starting a thread about how you have a big surprise tax bill and asking why they didn't w/h enough.

For withholding, they have to work with what you told them, no one is predicting/guessing the future.

-ERD50

 

[sengsational]

No W2 any more, but my target is to owe less than $100 for both federal and state. I know all inputs to the tax calculation in December, so run the numbers, and pay taxes out of tIRA or 401k by setting the withholding amounts. This is treated as being paid uniformly across the year, so one transaction rather than four for estimated taxes makes life easier. The only time I get or got money back was when I made a mistake.

 

[cathy63]

We just got a $20K refund for our 2022 taxes. The IRS processed our return and paid the refund in just under 3 weeks, no questions asked.

We were hoping to sell our rental late in the year, so didn't take any APTC and also made sure to pay estimates based on the previous year's income so we would be in a safe harbor. Unfortunately, the sale didn't happen until 2023, so we ended up with a huge refund for 2022.

 

[Sunset]

We paid based on safe harbor rules of 1.1 times last year's liability.

This year we had unexpectedly low income in some areas and are getting an $8K refund.

Means our safe harbor amount for 2023 will be pretty low.

 

[SevenUp]

I think (and I think others are saying the same), that there is no 'supplemental rate".

Actually there is, for withholding, and that can lead to high refunds.

See Withholding on supplemental wage payments for more.

Working only part year with withholding that assumes full year is also something that can lead to high refunds.

 

[Koolau]

Gonna find out this morning. We're soon heading to the CPA to sign our taxes and see what's what. I'm thinking we'll have a significant refund since we doubled up on charities again. YMMV

 

[audreyh1]

We paid based on safe harbor rules of 1.1 times last year's liability.

This year we had unexpectedly low income in some areas and are getting an $8K refund.

Means our safe harbor amount for 2023 will be pretty low.

Yes, I like that scenario and am in the same boat. I ended up overpaying estimated taxes for 2022 in the first 3 payments. Once I figured out by Nov/Dec that my 2022 income was way lower, I went ahead and did some tax gain harvesting which used up a lot of the overpayment (keeping an eye on IRMAA), but I still got to skip the fourth payment and am applying a little to Q1 2023 estimated taxes.

Somehow I have not had to do the annualized income method of calculating estimated taxes for many years now. I used to have to do that every other year or so to avoid overpaying estimated taxes.

My favorite lazy man’s method I get to use most years recently is to pay the first 3 installments based on prior years taxes*1.1/4 and then in Dec estimate my current year tax liability and on Jan 15 pay enough of that to cross the 90% threshold for current year taxes - if it’s lower of course.

 

[ImaCheesehead]

There is a supplemental tax rate applied to PTO when paid out at termination, just the same as it is applied to other bonus payments. It is currently 22%, a few years ago it was 25%. It all comes out in the wash when you do your taxes, it is just withholding and if your actual tax rate is less than 22% you get it back. I believe it is done so that employees who get big lump sum payments don’t end up not having enough to pay the IRS at the end of the year long after the lump sum is spent.

 

[ImaCheesehead]

Wow, I just hit 100 posts in 10 years of reading ER.org. Hope you all can keep up with me

 

[Koolau]

Gonna find out this morning. We're soon heading to the CPA to sign our taxes and see what's what. I'm thinking we'll have a significant refund since we doubled up on charities again. YMMV

Gaaahhhcccckkk! $13K! We took an extra $40K this year from the 401(k).

Gotta figure out how to withhold less this year.

 

[audreyh1]

Wow!

Big charitable deductions will reduce income taxes a lot.

Do you do Qualified Charitable Distributions directly? Looks like that’s limited to IRAs.

 

[MarieIG]

Wow, I just hit 100 posts in 10 years of reading ER.org. Hope you all can keep up with me

Whoaaa there! Better pace yourself.

 

[ERD50]

There is a supplemental tax rate applied to PTO when paid out at termination, just the same as it is applied to other bonus payments. It is currently 22%, a few years ago it was 25%. It all comes out in the wash when you do your taxes, it is just withholding and if your actual tax rate is less than 22% you get it back. I believe it is done so that employees who get big lump sum payments don’t end up not having enough to pay the IRS at the end of the year long after the lump sum is spent.

[-]OK, I'm only doing this to push you to post #102 , but...

Are you sure that is really a 'supplemental tax rate'? Or is it just the rate that would apply if it were part of (on top of) their annual income, regardless of the source?

I don't know, but I've never heard of such a thing.[/-]


UPDATE: Woooops, never mind, conserve that post count:

https://www.bankrate.com/taxes/how-bonuses-are-taxed/

A bonus is always a welcome bump in pay, but it’s taxed differently from regular income. Instead of adding it to your ordinary income and taxing it at your top marginal tax rate, the IRS considers bonuses to be “supplemental wages” and levies a flat 22 percent federal withholding rate.

So that is a new one on me. Learn something everyday? Well, today I did.

Further edit: Now I'm curious why 22%? There are , 24%, 32%, 35% and 37% brackets. Seems they'd go to your next highest bracket? This makes no sense to me.

-ERD50

 

[MarieIG]

[-]OK, I'm only doing this to push you to post #102 , but...

Are you sure that is really a 'supplemental tax rate'? Or is it just the rate that would apply if it were part of (on top of) their annual income, regardless of the source?

I don't know, but I've never heard of such a thing.[/-]


UPDATE: Woooops, never mind, conserve that post count:

https://www.bankrate.com/taxes/how-bonuses-are-taxed/



So that is a new one on me. Learn something everyday? Well, today I did.

Further edit: Now I'm curious why 22%? There are , 24%, 32%, 35% and 37% brackets. Seems they'd go to your next highest bracket? This makes no sense to me.

-ERD50

According to your link, a bonus of over a million is taxed at 37%.

Going back a number of years, I recall during a recession that the Wall Street peeps were either not getting bonuses or seeing a large cut in their bonuses. It made the papers as the NYC mayor at the time was less than pleased as apparently the taxes on these bonuses was nice sources of income for the City.

 

[1242Vintage]

I’m north of $10k on my federal refund.

I have a part-time “on-call” fun consulting job. However when I filled out the W-2 there’s a little question in the tiniest font that asks “Amount of other income that you don’t withhold taxes on $_______”.

Filling out the form on my I-phone all I read was “other income” amount and simply filled in my pension. So now my part-time jobs withhold way too much. I’m lazy and I’ve left it that way for a couple years.

Taking $5k of my federal refund as I-bond purchase (there’s a form for that in the tax paperwork) and the other $15k goes into my hunting and fishing fund … the one my wife isn’t aware of!!!

 

[badatmath]

Wow, I just hit 100 posts in 10 years of reading ER.org. Hope you all can keep up with me

LOL. A man (or lady) of few words! I am sure some here wish I talked that little as I seem to have a question a lot.

 

[Koolau]

Wow!

Big charitable deductions will reduce income taxes a lot.

Do you do Qualified Charitable Distributions directly? Looks like that’s limited to IRAs.

We looked into that and it seemed more trouble than it was worth. We have no tIRAs (all converted to Roth) so would need to create a tIRA and roll 401(k) money into it first. I guess I'm too lazy to deal with it.

I did once donate some appreciated stock. What a nightmare. The charity's broker got a big chunk of the money. Never again unless I know that the broker's cut is reasonable. YMMV

 

[audreyh1]

We looked into that and it seemed more trouble than it was worth. We have no tIRAs (all converted to Roth) so would need to create a tIRA and roll 401(k) money into it first. I guess I'm too lazy to deal with it.

I did once donate some appreciated stock. What a nightmare. The charity's broker got a big chunk of the money. Never again unless I know that the broker's cut is reasonable. YMMV

Donating appreciated stock to a DAF (donor advised fund) works very well, clean, no broker’s fee. Then you can donate to the charity from the DAF when you are ready. Vanguard and Fidelity offer low cost DAFs.

There may be some major pros of rolling your 401K in to an IRA, but you would have to evaluate it. QCDs after age 70 1/2 would be one of them.

 

[Koolau]

Donating appreciated stock to a DAF (donor advised fund) works very well, clean, no broker’s fee. Then you can donate to the charity from the DAF when you are ready. Vanguard and Fidelity offer low cost DAFs.

There may be some major pros of rolling your 401K in to an IRA, but you would have to evaluate it. QCDs after age 70 1/2 would be one of them.

Thanks. I'll have to check it out.

 

[athena53]

Donating appreciated stock to a DAF (donor advised fund) works very well, clean, no broker’s fee. Then you can donate to the charity from the DAF when you are ready. Vanguard and Fidelity offer low cost DAFs.

I LOVE my Fidelity DAF and wanted to add a big advantage I've posted before: you can make the donation anonymous. So, you have a legitimate, documented tax deduction when it goes to the DAF but Fidelity (or other firms) send the charity a check for the amount you specify and will leave your name off of it if you request that. It's saved me a bundle of follow-up solicitations.

 

[Sunset]

I LOVE my Fidelity DAF and wanted to add a big advantage I've posted before: you can make the donation anonymous. So, you have a legitimate, documented tax deduction when it goes to the DAF but Fidelity (or other firms) send the charity a check for the amount you specify and will leave your name off of it if you request that. It's saved me a bundle of follow-up solicitations.

Does it show as donation from Fidelity to the Charity, or as Anonymous to the Charity (via Fidelity) ?

Just wondering if Fidelity gets brownie points that aren't deserved. . .