I retired in January 2019 as a federal civil servant. I was able to cash in on my accumulated annual leave/vacation time which resulted in a fairly large check. I also stated receiving monthly pension checks as a result of my retirement. Taxes were taken out of my large check but apparently not enough because after inputting all my data into TT, it turns out that I now owe and substantial amount of federal taxes, i.e. over $16K. Can this be possible? It appears that U.S. Government as well as TT treated the large check I received as regular income as the amount of the check was reported in a W-2 form. Can this be possible? Does this sound correct? Is there anything I can do to lower this tax burden at this point? According to TT it does not qualify for IRA deduction as the amount of "income" was over the threshold amount.
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Compensation for unused vacation days is considered wages subject to withholding. If you can't pay the tax by July 15, you can get on an installment agreement.
The best thing you can do is pay it before July 15 this year. If you can't you can fill out Form 9465 Installment Agreement Request. You will be liable for penalties and interest.
Understand your agreement & avoid default
For complete information, see Installment
thank you. is there anything I can do at this point to reduce these owed taxes? Does income averaging still exist? my income increased significantly because of this payout. my income next year will go down significantly.
You can only income average if you have a business that fluctuates in income such as a retailer that experiences spikes in income during holiday or special days event like Valentines day or Halloween.
At this point, when you finish your return, it will ask you if you wish to do an installment loan agreement for the unpaid taxes. You might consider this alternative. To quickly access this agreement. Here is some information.
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