Question on Taxes (W-4) on a Lump Sum Payout

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mikejomike
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Joined: Tue Feb 28, 2017 9:49 am

Question on Taxes (W-4) on a Lump Sum Payout

Post by mikejomike » Wed Sep 13, 2017 8:40 pm

My wife has to schedule the deferment date for a lump sum (approx. $250k) from a non-governmental 457b. She can fill out a W-4 form to change the taxes withheld if she wants. I assume this lump sum payout will be taxed as if she made 26X$250,000=$6.5M (the company pay cycle is biweekly). She will not be working for most of 2018, which as of now is when we plan on taking the distribution. Is she allowed to claim as many allowances as she wants in order to make the taxes work out for our expected 2018 income as opposed to the tax withholding being based on $6.5M+?
Form W-4 says 'Whether you are entitled to claim a certain number of allowances or exemption from withholding is subject to review by the IRS.' Has anyone out there changed their witholdings for a lump sum? Is anyone aware of a good online calculator to help with this?

Ace1
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Location: Twinsburg Ohio

Re: Question on Taxes (W-4) on a Lump Sum Payout

Post by Ace1 » Thu Sep 14, 2017 8:58 am

If I were you, I would first inquire with her payroll dept and learn which withholding table
they will use for that payment... the biweekly or the annual.
Then, go to irs.gov and get publication 15 (aka circular e), and apply the
proper withholding table. You are permitted to use as many exemption allowances as needed
to have an appropriate amount of federal withholding applied for your circumstance.

Katietsu
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Re: Question on Taxes (W-4) on a Lump Sum Payout

Post by Katietsu » Thu Sep 14, 2017 9:35 am

I am not sure you are correct with respect to how the withholding will be calculated. I would think it would be more likely that withholding would follow the guidelines similar to that used for bonus payments.

mikejomike
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Re: Question on Taxes (W-4) on a Lump Sum Payout

Post by mikejomike » Thu Sep 14, 2017 9:53 am

Katietsu wrote:
Thu Sep 14, 2017 9:35 am
I am not sure you are correct with respect to how the withholding will be calculated. I would think it would be more likely that withholding would follow the guidelines similar to that used for bonus payments.
So would that be annual, or is there a special bonus schedule?

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FiveK
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Re: Question on Taxes (W-4) on a Lump Sum Payout

Post by FiveK » Fri Sep 15, 2017 1:04 am

mikejomike wrote:
Thu Sep 14, 2017 9:53 am
Katietsu wrote:
Thu Sep 14, 2017 9:35 am
I am not sure you are correct with respect to how the withholding will be calculated. I would think it would be more likely that withholding would follow the guidelines similar to that used for bonus payments.
So would that be annual, or is there a special bonus schedule?
If this does indeed fall under "supplemental wages" (e.g., bonuses, etc.), then see IRS Provides Guidance on Proper Income Tax Withholding for Nine Common Supplemental Wage Payment Scenarios | Lorman Education Services for some details.

mikejomike
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Re: Question on Taxes (W-4) on a Lump Sum Payout

Post by mikejomike » Fri Sep 15, 2017 8:43 am

Thanks. She has the question into HR to see how it would be taxed. Turns out we don't need to do the W4 now, only as we get closer to the deferment date, but we still need them to answer the question so we're prepared with an answer.

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