Severance package taxes

[pied2]

OK so I am one of many in this situation. Oh well. Here's my question. I am going to be getting roughly $70k at the end of the month. Are there reasons that I should not have taxes not taken out of this and put about 30% into savings and earn some interest on it?

 

[midtown]

Yes because the govt wants their interest. If you under-withhold by too much you'll have to pay a penalty and interest. If this happens in January that's almost a years worth that the gov't is missing out on and is going to want.

 

[AstroVol]

I'm no tax professional, but I believe there is a pretty stiff penalty if your taxes taken out through payroll are not within some percentage of your final calculated taxes. Otherwise, everyone in America would just say, "I'm not paying a dime in federal income tax until April 15th. I'll pay 'em, trust me."

 

[pied2]

hmmm. glad I asked.

Could have zero additional income the year, although that is not likely(knocking on wood)

What's the interest penalty?

 

[AUinAustin]

You really need a CPA to answer this. I had a similar situation when I sold some stock a few years ago and my CPA was able to minimize a penalty based on a lot of factors.

 

[ousuxndallas]

You can change your "dependents" to like 30, 40, or 50 though, and greatly reduce your withholding.

I did that about 1/2 through the year, and should owe some taxes come April 15. But I would rather do that than get a big refund.

 

[midtown]

In reply to:

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[Summerof79]

If you had an alternative vehicle to invest the money in (or starting your own business for example) you might dramatically offset the "income" aspect at the end of the calendar year and thus you net tax liability and interest penalties. I think the annual interest rate is pretty damn low right now. here is a good link from the IRS. The Link

Seems that you could take all the money as a lump sum, then pay quarterly and avoid any penalties at all. The IRS is going to receive a W-2 or 1099 (how are these monies normally dispursed? I am assuming W-2?) The IRS won't know that you got all the pay in month #1 unless they compare WHEN you paid your SS/Medicare taxes to when you payed your quarterlies. They will know that you recieved $70,000 in income, and they will check your quarterly tax contributions. I seriously doubt you would get flagged. pay quarterly and don't worry about it. Worst case scenario is a low percentage underpyament penalty, which is HIGHLy unlikely if your Return for 2008 you file next year ultimately has enough taxes withheld.

I would change the witholding to something ridiculous, and then come back and pay the quarterly payments and use the money longer, before paying the IRS.