View Full Version : Taxes on 401K withdrawal if did not elect tax withheld
lalji
Aug 7, 2016, 08:14 AM
Atlanta tax expert,
I have permanently relocated back to my home country in march this year after working in US on H1B visa. I withdrew 60K from my 401K and did not elect tax withhold option. I would like to know if I can pay taxes when I file my tax returns next year or am I supposed to pay taxes right now? I would appreciate a response. Thanks.
AtlantaTaxExpert
Aug 7, 2016, 05:43 PM
It depends on HOW MUCH was withdrawn, because it is possible that your normal income tax withholding may be enough to cover the added tax.
lalji
Aug 19, 2016, 02:26 PM
What if my normal withholding is not enough? Can I pay tax when I file my return next year?
ScottGem
Aug 19, 2016, 03:59 PM
Withholding is nothing more than an estimate of your tax liability. It is not the amount of tax you actually owe. When you file your return, the withheld amounts are applied against what you actually owe. If its not enough you have to pay. If it was you get a refund.
AtlantaTaxExpert
Aug 19, 2016, 05:57 PM
Well stated, Scott!
lalji
Aug 20, 2016, 03:29 AM
I understand that but my concern is will I have to pay interest/tax penalty if I actually owe taxes.
ScottGem
Aug 20, 2016, 03:47 AM
Not unless you are late in paying what you owe
AtlantaTaxExpert
Aug 20, 2016, 02:12 PM
Actually, that depends on the final tax bill and your overall financial situation.
You MAY be hit with an under-withholding penalty if you end up having to pay more than $1,000 when you file your tax return.
lalji
Aug 28, 2016, 12:33 AM
What is the penalty amount? How do I pay estimated tax if I want to avoid penalty?
AtlantaTaxExpert
Aug 28, 2016, 07:16 AM
First, you get taxed at your marginal tax rate, which is the tax rate on the LAST dollar you earn in the calendar year.
Second, you get hit with a 10% Early Withdrawal Penalty. This penalty CANNOT be mitigated by deductions or exemptions.
Third, you pay STATE taxes at your marginal tax rate.
In all, depending on your state, you will pay AT LEAST 10% and could be as much as 46% in taxes.
lalji
Sep 3, 2016, 09:35 AM
So, if I pay estimated tax right now, can I avoid getting hit by a higher tax rate? How do I pay estimated taxes? Thanks.
AtlantaTaxExpert
Sep 3, 2016, 02:07 PM
You file estimated taxes using Form 1040-ES (if you will file as a resident) or Form 1040-ES(NR) if you will file as a non-resident alien.
Paying estimate taxes does NOT affect the tax rate. It just allows you to avoid any under-withholding penalties.
lalji
Sep 3, 2016, 09:27 PM
What will I have to pay for under-withholding penalty?
AtlantaTaxExpert
Sep 4, 2016, 06:35 AM
That depends on the amount of tax due.
ScottGem
Sep 4, 2016, 08:20 AM
What will I have to pay for under-withholding penalty?
Under withholding penalties are usually imposed when there is a predictable income. So, in your case I would be surprised if they impose a penalty on a one time distribution.