Taxes: Does SIMPLE IRA contribution matter when calculating withholding?

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Gamma Ray
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Taxes: Does SIMPLE IRA contribution matter when calculating withholding?

Post by Gamma Ray » Thu Feb 13, 2020 12:41 am

Hi everyone,
I am in NYC.

I just looked at my last paycheck and it looks like my voluntary/pre-tax deductions are not taken into consideration when calculating Fed/State/City withholdings. Is this normal?

To give you a better idea, looking at $200k income, $60k was withheld for Fed/State/City/SS/Medicare taxes.
I had $22k pre-tax voluntary deductions. This makes it $178k taxable income with $60k tax withheld. Does this make sense?
Last edited by Gamma Ray on Thu Feb 13, 2020 1:12 am, edited 3 times in total.

MotoTrojan
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Re: Taxes: Does work IRA contribution matter when calculating withholding?

Post by MotoTrojan » Thu Feb 13, 2020 12:47 am

No such thing as a work IRA; the I is individual.

401K/HSA contributions through payroll deduction will impact your withholding though; the calculation will be as if you didn’t make that saved amount.

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Gamma Ray
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Re: Taxes: Does work IRA contribution matter when calculating withholding?

Post by Gamma Ray » Thu Feb 13, 2020 1:09 am

MotoTrojan wrote:
Thu Feb 13, 2020 12:47 am
No such thing as a work IRA; the I is individual.

401K/HSA contributions through payroll deduction will impact your withholding though; the calculation will be as if you didn’t make that saved amount.

Thank you MojoTrojan,
I made correction to my post, Work IRA, I meant SIMPLE IRA + Medical Pre-Tax. I appreciate you pointing that out.

Using this website I am getting this result and this result for $12500 and $20000 pre-tax deduction respectively.

I do not see Medicare tax listed on that website though.
Does this mean that, if there was nothing else to adjust my taxes (other income/etc) I should have been been paying much less per paycheck?

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dodecahedron
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Re: Taxes: Does work IRA contribution matter when calculating withholding?

Post by dodecahedron » Thu Feb 13, 2020 2:55 am

MotoTrojan wrote:
Thu Feb 13, 2020 12:47 am
No such thing as a work IRA; the I is individual.
Actually, despite the fact that "I" in IRA stands for individual, there are at least two kinds of employer-sponsored IRAs beyond the garden variety of truly individual IRAs with which most of us are familiar.

The SIMPLE IRA is an employer-sponsored IRA which works a lot like a 401k. The wiki has more info here. The OP has one of this type.

There is also an SEP-IRA that self-employed folks and small business owners can use to make contributions for themselves and their employees, if any. My late husband and I had a small business which had one of this type. More info in the wiki article here.

People can have these types of work-sponsored IRAs in addition to any regular traditional or Roth IRAs that they contribute to. Both the SIMPLE IRA and the SEP-IRA allow much larger annual contributions than the regular traditional and Roth IRAs do.

For completeness, I will also add that people can contribute to their garden variety traditional or Roth IRAs through an IRS-sanctioned payroll deduction plan at work.

maywood
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Re: Taxes: Does SIMPLE IRA contribution matter when calculating withholding?

Post by maywood » Thu Feb 13, 2020 6:54 am

You still have to pay SS and Medicare tax on the amount your contributed to the SIMPLE IRA, but not federal income tax.
So, it should lower the withholding for your federal income tax.

When you ultimately get your W-2 form, the SIMPLE IRA amount will not be included in box 1 "Wages", but that amount will be included in boxes 3 & 5 for SS and Medicare wages.

https://www.irs.gov/retirement-plans/re ... income-tax

MotoTrojan
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Re: Taxes: Does work IRA contribution matter when calculating withholding?

Post by MotoTrojan » Thu Feb 13, 2020 9:21 am

dodecahedron wrote:
Thu Feb 13, 2020 2:55 am
MotoTrojan wrote:
Thu Feb 13, 2020 12:47 am
No such thing as a work IRA; the I is individual.
Actually, despite the fact that "I" in IRA stands for individual, there are at least two kinds of employer-sponsored IRAs beyond the garden variety of truly individual IRAs with which most of us are familiar.

The SIMPLE IRA is an employer-sponsored IRA which works a lot like a 401k. The wiki has more info here. The OP has one of this type.

There is also an SEP-IRA that self-employed folks and small business owners can use to make contributions for themselves and their employees, if any. My late husband and I had a small business which had one of this type. More info in the wiki article here.

People can have these types of work-sponsored IRAs in addition to any regular traditional or Roth IRAs that they contribute to. Both the SIMPLE IRA and the SEP-IRA allow much larger annual contributions than the regular traditional and Roth IRAs do.

For completeness, I will also add that people can contribute to their garden variety traditional or Roth IRAs through an IRS-sanctioned payroll deduction plan at work.
Appreciate the insight. I wasn’t aware that these could be funded by payroll deduction.

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teen persuasion
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Re: Taxes: Does work IRA contribution matter when calculating withholding?

Post by teen persuasion » Thu Feb 13, 2020 10:14 am

Gamma Ray wrote:
Thu Feb 13, 2020 1:09 am
MotoTrojan wrote:
Thu Feb 13, 2020 12:47 am
No such thing as a work IRA; the I is individual.

401K/HSA contributions through payroll deduction will impact your withholding though; the calculation will be as if you didn’t make that saved amount.

Thank you MojoTrojan,
I made correction to my post, Work IRA, I meant SIMPLE IRA + Medical Pre-Tax. I appreciate you pointing that out.

Using this website I am getting this result and this result for $12500 and $20000 pre-tax deduction respectively.

I do not see Medicare tax listed on that website though.
Does this mean that, if there was nothing else to adjust my taxes (other income/etc) I should have been been paying much less per paycheck?
A better way to use that calculator might be to subtract your medical pre-tax entirely from your gross wages (since that won't have FICA or income taxes on it), and then put your actual SIMPLE IRA contribution as the 401k amount.

Is this one spouse's earnings, or two combined? The website is correctly limiting the SS portion of FICA when you exceed the cap. If the income is actually spit between 2 of you, neither of you may hit the cap. So the website would understate the total FICA.

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Gamma Ray
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Re: Taxes: Does work IRA contribution matter when calculating withholding?

Post by Gamma Ray » Thu Feb 13, 2020 4:44 pm

teen persuasion wrote:
Thu Feb 13, 2020 10:14 am

A better way to use that calculator might be to subtract your medical pre-tax entirely from your gross wages (since that won't have FICA or income taxes on it), and then put your actual SIMPLE IRA contribution as the 401k amount.

Is this one spouse's earnings, or two combined? The website is correctly limiting the SS portion of FICA when you exceed the cap. If the income is actually spit between 2 of you, neither of you may hit the cap. So the website would understate the total FICA.
Great point, something that I was made aware last year when I realized they kept paying SS taxes even though I went over the cap.
So to answer your question, it's just one's earnings. Wife's earnings are very minimal around $6k, which seems like it gets us just enough to have some SS payments but I am not even sure if getting $6k makes a dent on future SS distributions or not. That's another subject.

I will use the site and re-calculate as you suggested, it does look like they withheld a lot more than they should have so I need to be really careful with the returns making sure the tax prep specialists catches all these.

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