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.

It depends on HOW MUCH was withdrawn, because it is possible that your normal income tax withholding may be enough to cover the added tax.

What if my normal withholding is not enough? Can I pay tax when I file my return next year?

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.

Well stated, Scott!

I understand that but my concern is will I have to pay interest/tax penalty if I actually owe taxes.

Not unless you are late in paying what you owe

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.

What is the penalty amount? How do I pay estimated tax if I want to avoid penalty?

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.

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.

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.

What will I have to pay for under-withholding penalty?

That depends on the amount of tax due.

Quote:

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Originally Posted by lalji

What will I have to pay for under-withholding penalty?

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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.