How calculate my tax withholding for last year

[Aguilar]

I am going on a disability leave from my job due to an injury, and I need to provide an amount to withhold for fed and NY state taxes. This isn’t for electing additional tax withholding. If I don’t provide any number, the insurance company wouldn’t withhold any $ for taxes and Id face a large tax bill in every 2021.

How should I go about figuring out a withholding amount?

Should I base it off the percentage of my 2019 earnings against the taxes withheld in 2019, since my 2020 pay is similar?

I don’t really know where to begin.

[catlady]

I’d start with the IRS Withholding Estimator for federal.

[grabiner]

The two safe harbors for estimated tax are 90% of this year's tax, or 100% of last year's tax (110% if your adjusted gross income from last year was over $150K). NY has the same rules. So you want your total withholding, including any from your salary, to cover one of those numbers. If the insurance company is asking for a dollar amount to be withheld, look at your past withholding, and at any withholding you expect from the rest of the year (if you can go back to work); subtract that from the safe harbor value.

You may have to fill out a mock tax return to estimate your tax. If the injury has led to deductible medical expenses, your taxable income for 2021 will be lower than for 2020 even though your salary is the same.

The alternative would be to have nothing withheld, and to pay estimated tax. If you do that, you will have to report your previous withholding as being withheld during the quarter in which it was actually withheld, rather than spreading it evenly throughout the year; see IRS Form 2210 and check the instructions for Box D. If the safe harbor is, say, $20K, and you have had $8K withheld already, then you need to have $2K paid in estimated tax for the the second quarter (you can make this as a first-quarter payment, which is due July 15), and then $5K each for the third quarter due September 15 and the fourth quarter due January 15.

[FiveK]

I don’t really know where to begin.

Is your year-to-date withholding consistent with your expected tax liability?

If so, and you filed a new W-4 late last year or early this year, and your income rate for the rest of the year will the same as year to date, use the same W-4 entries you gave to your employer for the W-4 you give to the insurance company.

It boils down to having a good estimate for your 2020 tax liability (so you really should start there), and then having that much withheld by appropriate W-4 entries. You can take your best guess on the W-4 now, then watch the results for the next month or two and adjust via a new W-4 if needed.

[heerekj1]

If your disability insurance was paid with after tax money then the amount should not be taxable income. I think!

[Aguilar]

The two safe harbors for estimated tax are 90% of this year's tax, or 100% of last year's tax (110% if your adjusted gross income from last year was over $150K). NY has the same rules. So you want your total withholding, including any from your salary, to cover one of those numbers. If the insurance company is asking for a dollar amount to be withheld, look at your past withholding, and at any withholding you expect from the rest of the year (if you can go back to work); subtract that from the safe harbor value.

You may have to fill out a mock tax return to estimate your tax. If the injury has led to deductible medical expenses, your taxable income for 2021 will be lower than for 2020 even though your salary is the same.

The alternative would be to have nothing withheld, and to pay estimated tax. If you do that, you will have to report your previous withholding as being withheld during the quarter in which it was actually withheld, rather than spreading it evenly throughout the year; see IRS Form 2210 and check the instructions for Box D. If the safe harbor is, say, $20K, and you have had $8K withheld already, then you need to have $2K paid in estimated tax for the the second quarter (you can make this as a first-quarter payment, which is due July 15), and then $5K each for the third quarter due September 15 and the fourth quarter due January 15.

Thanks. I’ll elect a withholding amount rather than make estimated payments.

I suspect I’ll be able to work part time for a couple months by end of year. My total income for 2020 will be under $150k. Overall my income will be about 70% of last years tops.

do I still need to withhold 100% of the tax I paid in 2019 if my gross pay will be smaller?

And where on my 2019 taxes can I see the total tax paid to fed and NY? Just want to be sure I use the right data points.

[Aguilar]

If your disability insurance was paid with after tax money then the amount should not be taxable income. I think!

The insurance company said they don’t withhold any taxes unless I specify the amount. this money is taxable.

[FiveK]

...see IRS Form 2210....

do I still need to withhold 100% of the tax I paid in 2019 if my gross pay will be smaller?

Probably not - there are other "safe harbors". See the link from grabiner's post above, or these safe harbor rules. In other words, if you are not one "Who Must Pay Estimated Tax" then there will be no penalty.

And where on my 2019 taxes can I see the total tax paid to fed and NY? Just want to be sure I use the right data points.

Don't know about NY. For federal safe harbor purposes, see the instructions for line 8 in https://www.irs.gov/pub/irs-pdf/i2210.pdf. You'll have to translate the 2018 line numbers into the 2019 form. The 2019 form 1040 line 16 might be all you need if you have no refundable credits.

[Aguilar]

...see IRS Form 2210....

do I still need to withhold 100% of the tax I paid in 2019 if my gross pay will be smaller?

Probably not - there are other "safe harbors". See the link from grabiner's post above, or these safe harbor rules. In other words, if you are not one "Who Must Pay Estimated Tax" then there will be no penalty.

And where on my 2019 taxes can I see the total tax paid to fed and NY? Just want to be sure I use the right data points.

Don't know about NY. For federal safe harbor purposes, see the instructions for line 8 in https://www.irs.gov/pub/irs-pdf/i2210.pdf. You'll have to translate the 2018 line numbers into the 2019 form. The 2019 form 1040 line 16 might be all you need if you have no refundable credits.

I checked the safe harbor page. I’m confused more now. I’m planning on specifying a withholding amount, not making estimated tax payments. The IRS page is about estimated tax. What are you suggesting exactly?

And for the second part, what do you mean by this?
“You'll have to translate the 2018 line numbers into the 2019 form. The 2019 form 1040 line 16 might be all you need if you have no refundable credits.”

I’m having trouble understanding what you are recommending I do. Sorry, I’m not an expert.

[FiveK]

I checked the safe harbor page. I’m confused more now. I’m planning on specifying a withholding amount, not making estimated tax payments. The IRS page is about estimated tax. What are you suggesting exactly?

That you withhold enough to meet at least one of the conditions so you don't need to make estimated tax payments. Each of those conditions is colloquially referred to as a "safe harbor" and you merely need to find yourself in one to be safe from underpayment penalties. Does that make sense?

And for the second part, what do you mean by this?
“You'll have to translate the 2018 line numbers into the 2019 form. The 2019 form 1040 line 16 might be all you need if you have no refundable credits.”
I’m having trouble understanding what you are recommending I do. Sorry, I’m not an expert.

You asked "where on my 2019 taxes can I see the total tax paid to fed? Just want to be sure I use the right data points."

If you are asking for 2020 safe harbor purposes, form 2210 gets into the nitty-gritty of "the right data". When you file 2020 taxes in 2021, there will be a 2020 version of form 2210, and that will refer to line numbers on the 2019 form 1040. The laws haven't changed, but the form 1040 line numbers have. Does that help?

[Aguilar]

I checked the safe harbor page. I’m confused more now. I’m planning on specifying a withholding amount, not making estimated tax payments. The IRS page is about estimated tax. What are you suggesting exactly?

That you withhold enough to meet at least one of the conditions so you don't need to make estimated tax payments. Each of those conditions is colloquially referred to as a "safe harbor" and you merely need to find yourself in one to be safe from underpayment penalties. Does that make sense?

And for the second part, what do you mean by this?
“You'll have to translate the 2018 line numbers into the 2019 form. The 2019 form 1040 line 16 might be all you need if you have no refundable credits.”
I’m having trouble understanding what you are recommending I do. Sorry, I’m not an expert.

You asked "where on my 2019 taxes can I see the total tax paid to fed? Just want to be sure I use the right data points."

If you are asking for 2020 safe harbor purposes, form 2210 gets into the nitty-gritty of "the right data". When you file 2020 taxes in 2021, there will be a 2020 version of form 2210, and that will refer to line numbers on the 2019 form 1040. The laws haven't changed, but the form 1040 line numbers have. Does that help?

For the first part above, I get that now. Thanks. Grabiner mentioned the 100% thing. Sounds like I could get by with withholding less this year since I’m making less. But what percentage of 2019 taxes should I target if less than 100%?

For part two, I’m lost. Maybe it’s the meds I’m on. Is there a line in my 2019 1040 that shows my full taxes paid in 2019? Cause that’s what I’m trying to figure out, so I can figure out what I need to withhold for the rest of 2020.

[FiveK]

For the first part above, I get that now. Thanks. Grabiner mentioned the 100% thing. Sounds like I could get by with withholding less this year since I’m making less. But what percentage of 2019 taxes should I target if less than 100%?

Because you are making less in 2020, your 2019 taxes are probably irrelevant (for the purpose of safe harbors). Your 2020 tax liability is the number of interest. See US and state income tax calculator - Bogleheads.org for some suggestions on how to estimate that.

For part two, I’m lost. Maybe it’s the meds I’m on. Is there a line in my 2019 1040 that shows my full taxes paid in 2019? Cause that’s what I’m trying to figure out, so I can figure out what I need to withhold for the rest of 2020.

Basing 2020 withholding on 2019 tax will likely cause much overwithholding. But if your return is "very straightforward" then line 16, total tax, might answer your question.

[Sahara]

As others have said, Line 16 on your 2019 Form 1040 will provide your total Federal Income tax for 2019. This number is the result of calculations occurring on lines 1 through 15, which take into account your 2019 income, interest, tax credits, and other items.

I would suggest trying to create a 2020 form 1040 using this calculator: https://www.mortgagecalculator.org/calc ... ulator.php

Input any income already received as well as the disability insurance and future income anticipated for the year. The calculator will provide an estimate of your total Federal Income tax for 2020.

You could then subtract any income tax already withheld for 2020 or scheduled to be withheld for 2020 and ask the insurance company to withhold the difference.

Your 2019 NY State Income tax can be found on line 46 of NY Form IT 201. You could create a mock 2020 NY return and follow the same process as above for NY.

I do think it might be easiest to provide the insurance company with a W4 similar to the one you use for your job if your taxes have been pretty regular over the past few years - no huge over or underpayment.

[Aguilar]

For the first part above, I get that now. Thanks. Grabiner mentioned the 100% thing. Sounds like I could get by with withholding less this year since I’m making less. But what percentage of 2019 taxes should I target if less than 100%?

Because you are making less in 2020, your 2019 taxes are probably irrelevant (for the purpose of safe harbors). Your 2020 tax liability is the number of interest. See US and state income tax calculator - Bogleheads.org for some suggestions on how to estimate that.

For part two, I’m lost. Maybe it’s the meds I’m on. Is there a line in my 2019 1040 that shows my full taxes paid in 2019? Cause that’s what I’m trying to figure out, so I can figure out what I need to withhold for the rest of 2020.

Basing 2020 withholding on 2019 tax will likely cause much overwithholding. But if your return is "very straightforward" then line 16, total tax, might answer your question.

I checked out the mortgage site’s calculator. I’m not sure how to approach an amount to put for some of the fields like taxable interest and dividends. Should I just use my 2019 figures? And where can I find them on my 2019 1040?

I did the math to estimate my total income for 2020 and it’s bigger than I thought—actually the equivalent to if I worked 12mos at full pay—since I’m getting a 3mos severance and my first 3 months of disability were 100% pay and my remaining disability benefits would be a total of about 9 months at 2/3 pay. In sum, I estimate my total gross pay will be about $210k.

Does this mean I should just go by line 16 from my 2019 1099? 2019 income included work pay and dividends. Same applies in 2020. I’m having issues getting into TaxAct to get my 1040. If this is how I should approach this, and say the total fed taxes paid in 2019 were $40k and I had a tiny refund, am I supposed to do this formula to figure out the ideal tax withholding for my LTD checks?:

(40k - Total fed taxes withheld YTD) / 14
14 is the # of disability checks Id get for the rest of 2020

Here’s the math I ran to calculate total income from work:

As of June 1:
110k gross pay (includes some bonuses. Not sure if this included income from sales of RSUs. How do I check that?)
22k fed income tax
8500 ny income tax
Other taxes paid for SS Medicare etc - I didn’t include these in my calculations

One check at 2/3 pay for 2 weeks of work:
4500 gross pay
800 fed income tax withheld
300 ny income tax withheld

Severance: 12 weeks
34k gross pay
Estimate 6K fed income tax (17.8%) based on the cumulative fed tax against YTD gross pay)
2600 state income tax (7.7% based on cumulative state tax against YTD gross pay)

Disability pay rest of 2020 from June 15:
14 checks so 14 x 4500 gross pay
800 fed income tax
300 ny income tax
=
63k gross pay
11,200 fed income tax
4200 ny income tax

Assume work 10 hours per week at $70 per hour for 3 months and disability benefits are reduced by half that amount so in essence you gain 50% of your work pay which means $700 per every two weeks, which is $4200 for 3 months so:
4200 gross pay
750 fed
320 NY

**** Total income expected in 2020 and Total expected taxes that would be withheld for the full year if I asked LTD insurance company to withhold the same amount per benefit check as STD insurance co did:
211k Gross pay: 110k + 34k + 63k + 4K
40k Fed income tax
15.5k NY income tax
(Doesn’t add up to 17.7 and 7.7 % x gross pay-why? Rounding error?)

Unsure how to account for other sources of income. I get dividends from mutual funds. Nothing else. My ordinary dividends for 2019 totaled $17350 and qualified dividends totaled $14680.

I don’t expect my medical expenses this year to come close to the amount needed to deduct them from my tax burden in 2020. During the pandemic my insurance carrier has waved copays for specialist visits so even though my healthcare costs overall are going to be much bigger than in year’s past, unless I have to be hospitalized etc, my healthcare patient costs shouldn’t be bigger than $6k.

Thanks
Aguilar

[Sahara]

The dividends go on the 4th and 5th boxes in the calculator.

Here’s what it looks like to me using the calculator, single no dependents, and your numbers.

211,000 income
17,350 Dividends
14,680 Qualified Dividends


Total income 228,350.00
Standard Deduction -14,050
Taxable income = 21,430.00
Total Tax 47,854
Your estimated withholding - 40,000
Underwithheld $7,854

RSU’s are something about which I have no knowledge.

I would verify all withholding on severance etc will be as you predict. Maybe you can call HR and have them input the current W4 info to verify your calculation.

Likewise, you could call the insurance company and have them input the current W4 info to calculate the withholdings for you. If they say they will withhold 800 per check you will fall short approximately the amount above and could request that they withhold another 500 per check (500 X 14 = 7000).

[Aguilar]

The dividends go on the 4th and 5th boxes in the calculator.

Here’s what it looks like to me using the calculator, single no dependents, and your numbers.

211,000 income
17,350 Dividends
14,680 Qualified Dividends


Total income 228,350.00
Standard Deduction -14,050
Taxable income = 21,430.00
Total Tax 47,854
Your estimated withholding - 40,000
Underwithheld $7,854

RSU’s are something about which I have no knowledge.

I would verify all withholding on severance etc will be as you predict. Maybe you can call HR and have them input the current W4 info to verify your calculation.

Likewise, you could call the insurance company and have them input the current W4 info to calculate the withholdings for you. If they say they will withhold 800 per check you will fall short approximately the amount above and could request that they withhold another 500 per check (500 X 14 = 7000).

Using this calc I get different #s
https://www.mortgagecalculator.org/calc ... ulator.php

228,350 income
12,400 standard deduction
215,950 taxable income
47,624 total tax before credits
48,382 total tax after credits

What does this mean? Your numbers are so different.

This insurance company isn’t going to do anything related to this. They already told me so.

[Sahara]

You are correct, $48,382. My calculator was set for the standard deduction above age 65.

What kind of number does the insurance company require from you?
Do they want you to submit a W4 or do they want you to specify X dollars withheld per check?

Is there an option to wait until you have the first disability check and estimate where you'll end up, then adjust?

You also state "I suspect I’ll be able to work part-time for a couple of months by end of the year." Another option would be to keep track until then and increase the withholding over the last few months of the year to come within the 90% you would need to avoid penalty.

[FiveK]

228,350 income
12,400 standard deduction
215,950 taxable income
47,624 total tax before credits
48,382 total tax after credits

What does this mean? Your numbers are so different.

This insurance company isn’t going to do anything related to this. They already told me so.

Yes, that's the same federal tax the toolbox spreadsheet calculates. FWIW, that spreadsheet estimates ~$13.8K for NY state tax - don't know how accurate that is.

Don't understand "...isn't going to do anything related to this."

But you now have an estimated 2020 tax liability, and a known 2019 tax liability. Between the two of those, you can calculate the three safe harbors for your 2020 withholding amount:
- 90% of 2020 tax liability
- $1000 less than 2020 tax liability
- 110% of 2019 tax liability

If your 2020 withholding is more than any one of those, there will be no under-withholding penalty.

Take your best guess at specifying the disability withholding now, then check back in a couple of months to update both the 2020 tax liability and withholding numbers. Adjust withholding if needed. Repeat. Good luck!

[Aguilar]

228,350 income
12,400 standard deduction
215,950 taxable income
47,624 total tax before credits
48,382 total tax after credits

What does this mean? Your numbers are so different.

This insurance company isn’t going to do anything related to this. They already told me so.

Yes, that's the same federal tax the toolbox spreadsheet calculates. FWIW, that spreadsheet estimates ~$13.8K for NY state tax - don't know how accurate that is.

Don't understand "...isn't going to do anything related to this."

But you now have an estimated 2020 tax liability, and a known 2019 tax liability. Between the two of those, you can calculate the three safe harbors for your 2020 withholding amount:
- 90% of 2020 tax liability
- $1000 less than 2020 tax liability
- 110% of 2019 tax liability

If your 2020 withholding is more than any one of those, there will be no under-withholding penalty.

Take your best guess at specifying the disability withholding now, then check back in a couple of months to update both the 2020 tax liability and withholding numbers. Adjust withholding if needed. Repeat. Good luck!

Got it. Is my 2020 tax liability 47624 or 48382?

And any ideas from anyone on how I calculate my NY state tax liability? And what are the safe harbor rules for NY? I wonder if the $13.8k is right.

[FiveK]

Got it. Is my 2020 tax liability 47624 or 48382?

$48,382, based on Form 2210's line 2 "...Additional Medicare Tax and/or Net Investment Income Tax" matching the toolbox's "Add'l Medicare tax = $99 and NIIT = $659"

And any ideas from anyone on how I calculate my NY state tax liability? And what are the safe harbor rules for NY? I wonder if the $13.8k is right.

Same way you calculated it for 2019?

See Who must make estimated tax payments [for NY]?

[bernieleeds]

Have they changed UPGRADED accounts to include withholding?
They only do withholding on OLD accounting system, and do NOT do withholding on new system?
The old system only did withholding on some states, but the federal withholding was very convenient!

[FiveK]

Have they changed UPGRADED accounts to include withholding?
They only do withholding on OLD accounting system, and do NOT do withholding on new system?
The old system only did withholding on some states, but the federal withholding was very convenient!

Who is "they"?