Taxes

[Robby624]

I recently got a new job and had to take out my retirement they took out my taxes and penalties do I have to pay anything back on my income tax? If so with 10% of what I received it was 560.8 so is that how much I would have to pay back?

[VolvoGirl]

Not exactly sure what your question is.  If you left a job and had to take out your retirement (was it a 401K?)  yes you have to include the total amount before taxes as income and taxed at your regular income bracket.  You will get a 1099R for it in January.  You will get credit for any tax withholding they took out.   By the way you have (or had)  60 days to roll it over to a IRA to avoid the tax on it.  

[NCperson]

@Robby624  taxes are ONLY calculated on a tax return and no where else. 

When you cashed out your retirement, the administrator WITHHELD money for taxes.  That is just an ESTIMATE of what the taxes could be.  

without completing your 2024 tax return, no one here would know whether you get a refund or owe additional.  

[rjs]

It's not clear what "my retirement" was. Was it a 401(k)? A pension? Something else?

If you still have time to roll it over to an IRA, and you decide to do that, if you can you should put into the IRA the full amount that was in the retirement plan, including the amount of tax that was withheld. That means you would have to come up with money from somewhere else to make up for the withheld tax. It would all get balanced out on your tax return at the end of the year, so in the end you would not pay any tax or penalty on the withdrawal.

[VolvoGirl]

On your other new post you said it was $6,819 and you got 5,608.  So 1,211 was taken out for tax withholding.  Was that just federal or federal and state?  If you are under 59 1/2 the 10% Early Withdrawal Penalty is on the full amount of 6,819 x .10 = $681.90.  

You didn’t actually pay the tax or the 10% penalty (you pay a 10% early withdrawal penalty if you are under 59 ½). You had taxes withheld like from your paycheck. You still have to enter the whole gross amount (before taxes were withheld) with your other income to figure out the total tax (and it may put you into a higher tax bracket) and then the withholding is subtracted from the total tax to figure your refund or tax due. The Gross amount shows up on 1040 line 4a or 5a and the taxable amount on 4b/5b. The withholding will show up on 1040 line 25b.

[Robby624]

So i would have to pay $681.90 back??

[VolvoGirl]

Not necessarily.  The 1,211 withholding may be enough to cover it.    The 10% Early Withdrawal Penalty is added to the total tax on your tax return.  Then all your withholding and any credits are subtracted leaving you with a refund or tax due.  Is this for 2024?  Any tax due is not due until April 15, 2025.  

[Robby624]

So i might not have to pay? So my withheld tax might cover it? Sorry for asking so many questions this is my first time 

[Opus 17]

If you quit your job, and you had a 401k at that job, you have 3 options.

1. Leave the money in the account to grow tax-free (but, if the balance was small, they might force you out).

2. Rollover the money to a retirement plan at your new job or to your own IRA (tax-free rollover).

3. Withdraw the money and keep it.

If you withdraw the money and keep it, you will owe regular income tax plus a 10% penalty.  Regular income tax might be 12%, 22%, or higher, depending on your other income, plus state taxes which can be between 3% and 12% depending on the state.  Any withholding is just a mandatory estimate.  The actual tax you owe is calculated at the end of the year on your tax return.  You list all your income (including this withdrawal) and all your deductions, credits and dependents.  Your tax is calculated and you get credit for any withholding (such as from paychecks and from this withdrawal).  If you owe more tax than was withheld, you owe an additional payment, and if you had more withheld than your tax, you get a refund.

There is no way to know what your ultimate tax situation will be without knowing all your income and all your withholding.  If you are single and your total income for the year is between $25,000 and $60,000, then the tax owed just on the retirement withdrawal will be 12% tax ($818) plus the 10% penalty ($682) plus any state income tax.  So the withholding (by itself) is a little short.  But whether this will add up to owing something or just getting a smaller refund will depend on your jobs, your dependents, and your other withholding.   

[Robby624]

Gotcha appreciate that

[Opus 17]

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@Robby624 wrote:

Gotcha appreciate that

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Also, if you want to put the money back into tax-free retirement, you can do that if it is less than 60 days since you made the withdrawal.  Sometimes I think employers don't explain the options, they just tell you that when you separate, you must leave the plan.

You can of course, take the money and pay the tax.  But if you want to keep it tax-free for retirement, you have 60 days to deposit the money into an IRA (that you can open at many banks or brokers) or deposit the money into the 401k of your new employer (if they will accept the funds).  This is called a rollover and is tax free.

In your case, you would have to deposit the whole $6819 into the new plan, which means you have to temporarily borrow the $1200 that was withheld so you can deposit it into the new rollover account.  But if you do a rollover, it's tax-free and the entire withholding amount gets added to your tax refund, so you get it back when you file your return.  Even if you had to pay someone to borrow the money for 6 months, the short term cost of a loan is probably less than the tax you would pay.  Or, if you deposited just the $5608, then it counts as a rollover of $5608, and a taxable withdrawal of $1211.  The tax on that withdrawal would be about $300, so you would get most of the withholding back in your tax refund.

The key date is that the rollover must be completed within 60 days of the withdrawal. 

[NCperson]

@Robby624 without a full understanding of your tax situation, reviewing all your income, all your withholdings, your filing status, a review of what credits you are eligible for, answering your question is not possible.

You won't know the answer to your question until you file your tax return for 2024.  The purpose of filing a tax return is to answer the exact question you are asking: do I owe or do I get a refund?