Posted on 02/28/2013 12:18:59 PM PST by Responsibility2nd
Taxpayers anxiously awaiting a tax refund from Uncle Sam may be waiting a bit longer this year.
The sweeping automatic budget cuts set to take effect March 1 translates to an 8.2% funding cut to the IRS, according to reports, which could force the agency to furlough workers during tax season.
~snip~
And thanks to the fiscal cliff fiasco, the IRS is already behind, says David Selig, federal tax practicioner at Selig & Associates and founder of TrueTaxHelp.com. Tax changes included in the last-minute deal struck by Congress at the start of the year forced the IRS to quickly update its systems.
“Unless a deal is reached, the IRS will furlough the non-essential personnel, and a tax refund is not a high-priority matter” Selig says, “They already aren’t up to speed due to the fiscal cliff, and these problems were complicated further by Obamacare.”
~snip~
Regardless of whether or not sequestration can be averted, Selig says the damage is done.
“We have already wasted hundreds of millions leading up to this,” he says. “Our elected officials are squandering taxpayer dollars.”
The gov has a hose into our pockets and it sucks out whatever it wants. When it’s forced to turn the valve a little and reduce the suction, it does everything it can to MAKE US SUFFER. It cuts back on fire protection so our houses will burn and we will crawl back and beg forgiveness, it cuts back on police protection so our stores will be looted and we will promise never again to deny the gov what it demands, it cuts military, benefits to the elderly and tax refunds, it stops filling potholes so we break an axle.
Defy the all powerful gov and this is what you get.
Paying uncle Sam over $3K and his damn $30 "underpayment penalty" as well. I'm quite content with that. I can always budget money out, but predicting a "refund" is futile and stupid. I've known too many people who base their entire summers around a refund. It's just idiotic.
I think you meant to say “lowered your withholding”, i.e. had less taken out, or in other words “upped your withholding allowances”. (Sorry as a payroll professional, I just had to correct you – it is a common mistake ; ), )
Be aware however that while owing $3K and paying only a $30 penalty doesn’t seem so bad, you “could” face a $500 civil penalty from the IRS for “purposely falsifying” your W-4 in order to claim more allowances than you were not entitled to claim and while you only paid a $30 penalty at the time you filed, the IRS could come back and charge you interest based on the idea that the U.S. system of taxation is based on a “pay as you go” principle. :(
This would be especially true if for any reason you were not able to pay the $3K by April 15th (not to mention the additional penalties + interest) and even a $1,000 fine and up to a year in jail for intentional and repeated underwithholding.
IRS Penalties for Underwithholding
That and the IRS could also issue a “Lock In” (2800C) letter to your employer if your yearend tax bill is big enough and you owe more than $1K repeatedly, instructing them to withhold only x number of allowances and not allowing you to change your W-4 without a Lock In Release letter to your employer from the IRS. I had that happen recently to an employee who was claiming married and 15 withholding allowances but after the IRS “Lock In” letter I had to change it to single and 0 allowances and despite this employee’s objections and protestations, legally I have no choice and it has to stay that way until I receive a letter from the IRS either changing it or releasing the Lock In all together.
Understanding your 2800C Letter
But I completely agree; purposely planning on and getting a big refund every year is a truly stupid, monumentally stupid idea – it is nothing more than an interest free loan from you to the government. You are much better off having less withheld and instead of spending it each pay, putting it in at minimum, an interest baring savings account or just stuffing it a coffee can for a rainy day or better yet, putting the extra toward paying down any debt.
What you really want to do is neither owe at tax time nor get a refund and get as close as possible to that zero number. Sometimes that means adjusting your W-4 allowances up or down or even having a bit extra taken out for a time, several times during the year or at least once a quarter if necessary given any changes in your tax situation (additional income or a 2nd job, deductible losses, the sale or purchase of a home, marriage, divorce, having children, children no longer your dependents, etc.) in order to get as close to possible to zero liability and zero refund as possible.
There are several tools available for calculating your withholding, among them:
Top 5 Reasons to Adjust Your W-4 Withholding
And if you file your taxes yourself using H&R Block Tax Cut or Turbo Tax, they also have calculators as does “Paycheckcity.com” as do many of the major payroll processing services like ADP and Ceridian if your employer uses one of them and you have access to their “Self Service” site.
So next year, please don’t owe anything more than $1K and preferably much, much less and don’t give the IRS an extra dime in the form of any penalty and don’t get a refund either or at least not much more than the cost of a can of coffee (where you just might be stashing that extra cash ; ), )
Women and minorities hardest hit, “as usual”.
I like how you think, I have never given the gov-mint a year of a an intrest free loan ever.
Those a$$ holes with earned income credits make me hate them and the kids they have produced in order to rape the rest of us who paid our own way!
How do I do that with monies withdrawn from my IRA?
All those computers run programs written by people, and the programs have to be tested and debugged. Changes for 2012 were made for what was expected and then some tax provisions were changed at the last minute.
Waiting a little longer to file is better than having them accept returns before the code is tested.
I will owe several thousands of dollars to the fedguv for income taxes on 2012 return and will wait until the last second (10-15-2013 for low-information voters).
I used to pride myself for paying taxes on a timely basis. My father (a lifelong Democrat) always told me "Nobody ever went broke paying taxes".
Screw that. I'm waiting until the last minute before SHTF and I may stop paying the silly bastards altogteher at some point.
I’m not sure I understand your question. Are you asking about the tax penalties on early withdraw from an IRA before the age of 59 ½?
If you withdraw money from your traditional IRA before age 59 ½ you are subject to a 10% penalty in addition to federal and or state income tax or even local income taxes depending on where you live unless certain circumstances apply including but not necessarily limited to a permanent disability, death (there is no penalty to your heirs in that case), non-reimbursed medical expenses, the first time purchase of a home, some higher education costs for you, your spouse or children or medical insurance premiums if you are unemployed. The amount of federal tax withheld along with other considerations, will depend on your tax bracket. The rules for a Roth IRA are a bit different but I am not that familiar with them.
There is also a similar penalty for early withdraw from a 401K. When I left my last job I took a direct distribution from my 401K rather than rolling it over because it wasn’t that much money and even though I paid a 10% penalty and paid federal income tax on it, at the time I had nearly a month between my last paycheck from my previous employer and the 1st from my new employer and still had bills to pay so while not the advisable move in most cases, in my situation it was a necessity.
My expertise (such as it is : ), ) is in payroll and payroll tax compliance and general HR and DOL compliance and not so much in public accounting or in personal finance, investments and taxation. If you have questions about withdrawing money from your IRA, you should really consult with a certified investment advisor or a CPA.
If you are asking about how to adjust your withholding or estimated taxes to accommodate for an early IRA withdrawal, again this would depend on a whole lot of factors regarding your personal tax situation.
I sometimes have employee’s come to me and ask me for advice in completing their form W-4 – “how many allowances should I claim?”, “should I claim married or married but withhold at the higher single rate?” and unfortunately I can’t and won’t give them such advice because 1) I am not a CPA and not a personal tax preparer (although I did work with a CPA and attorney some years ago and assisted in preparing both personal and business tax returns, I didn’t sign them and my work was always reviewed and I don’t keep up with all the tax laws other than payroll withholding), 2) am not being paid to provide such personal services nor am I or my company indemnified by any sort of professional liability insurance should I give “bad” tax or investment advice to an employee and 3) unless I had access to all the employee’s (and their spouse’s if filing jointly) current personal financial information and probably at least the last 3 years worth of tax returns, W-2, 1099’s, mortgage interest statements, investment income statements, etc., based solely on the paychecks I process for this employee, their marital status and number of dependents, I can only guess at their overall tax situation.
The only thing I will tell an employee is that the fewer allowances you claim on your W-4, the more will be withheld in federal income tax, the more allowances you claim, the less will be withheld. If you owed money at the end of last year and don’t anticipate any changes to your financial situation this year, you “might” consider lowering your allowances to have more withheld, if you got a big refund, the opposite would apply. I point them to the resources in my previous post or advise them if they have complex tax situations or they are uncomfortable with figuring it out for themselves, they should really go to a reputable tax preparer or CPA.
Yeah, but the obvious is it will delay them processing the payments. So you can probably count on some float.
I’m talking about 20% being withheld from anything I withdraw from my retirement IRA. I’m over 65 so I would like to know how I don’t have this percentage taken out when I get money.
Too late.
At age 65 and up to 70 ½ , I think that regular or periodic distributions from your Traditional IRA are considered a “normal distribution” and are subject to ordinary income taxes. Prior to age 59 ½ it is an early withdrawal and subject to both income tax and the 10% early withdrawal penalty however if you are over the age of 70 ½ there are required minimum distributions and there are penalties for not taking regular distributions.
Check this out:
IRA distributions 59 1/2 to 70 1/2
Withholding from IRA distributions
Federal income tax is withheld from distributions from traditional IRAs unless you choose not to have tax withheld. Generally, tax is withheld at a 10 percent rate. If you receive an annuity or similar periodic payment, tax withheld is based on your marital status and the number of withholding allowances you claim on your withholding certificate (Form W-4P).
And
20% sounds like too much but I can’t say for sure. Are your distributions an annuity and did you ever file a form W-4P with the financial institution where your IRA is located when you first started taking distributions?
I would first contact their customer service department and ask them how they are arriving at a 20% withholding rate and ask them how to submit an updated form W-4P to change your withholding and or not have any tax withheld on future distributions assuming that you qualify and that is what you want.
I can’t say for sure as I’m not an expert in this area, but if you have been over withheld in past years, I would think that you may be entitled to a refund of over payment in taxes presuming you are still filing income tax returns. If you haven’t filed income tax returns in those years since you retired and since you started taking distributions from your IRA because you were not required to file returns because of your income level, I would suggest next contacting the IRS to see if you can’t file now for those years in order to claim any refund you may be entitled to (and the IRS is not always the bad guy, and they can actually be very helpful sometimes, explain your situation and or even visit your local IRS office) or you might also think about consulting with a CPA or if you can’t afford that, try contacting your local senior center or if you belong to a church or other civic association or club, inquire if there are any free or discounted services available to you.
Good luck and let me know what you find out.
Well, I owe $5,000, thanks to cashing out an IRA. They’ll get it - on April 14th.
Oh, well. Got mine this morning. It is already in the bank account.
Earned Income Tax Credit is one of Obama’s wealth redistribution schemes. Pure socialism with a deceptive fraudulent description.
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