Remember that going into the next tax bracket does not subject all your income to the new bracket, only the amount by which you go into the new bracket. I also can't tell if you are taking your deductions into account.
Assuming you take the standard deduction for MFJ of $24,800, then your income is taxed at 12% up to $104,250.
- The first $24,800 is tax-free (the standard deduction)
- Then the next $19,750 is taxed at 10%
- Then the next $60,500 is taxed at 12%.
- Only amounts over $80250 of taxable income (which is $104,250 once you add in the standard deduction) are taxed at 22%.
So even if your taxable income after the deductions is expected to be $74,000, if you had $7,000 of income from a 401(k) withdrawal, only the last $750 would be taxed at 22%, not all your income.
However much you withdraw you have the option of spreading it out over three years. If you return part or all of the money within 3 years, you will either get a credit for the tax you paid, or you will file an amended return to report the return and adjust your income tax and get a refund that way. (We don't yet know how a late return will be handled as that will depend on the 2021 tax forms which is a long way off. Filing an amended return is the safe bet but there are other ways the credit could be handled.)
