Help calculating federal income tax withholding for disability benefits

[Aguilar]

I'm looking for help to figure out federal withholding for the rest of 2021. My 2021 financial outlook is fairly different. I'm disabled and receive private disability benefits now.

2020 included:

W2 (former job): $155k with $32k fed income tax (FIT) withheld
W2 (disability): $47k with $7.5k FIT withheld
1099-DIV - $17.5k total ordinary div/$15.5k qualified div
$39.5k FIT withheld, $7k federal taxes owed
filed married separate
standard deduction

2021 will likely include:
W2 (disability): $113k with $0 FIT withheld (just found out they stopped withholding federal from my disability checks in Dec '20 for some reason)
1099-INTS and DIV will be similar in 2021 compared to last year, ie $17.5k total ordinary div/$15.5k qualified div
filing single
standard deduction

Update: I tried using the IRS tax withholding calculator. It doesn't take into account my specific dividend payments but that aside, it says based on 0 fed withholding in my checks so far this year, if I don't make a change to withholding, I'll owe $17,415 in FIT.

The calc recommends I have $2,177 withheld from each paycheck. I'm paid monthly, and the Jan/Feb/Mar/April checks have been issued. For the remaining 8 checks, should I have $3450 withheld for federal then?

Thanks

[MrJedi]

If you can accurately estimate your 2021 taxable income and tax credits, then you can calculate the amount of tax liability you will have for 2021. More info is needed if you are looking for step by step numbers (filing status, deductions, credits, etc.)

Then you would withhold an amount to try and match your tax liability or at least enough to meet one of the safe harbors if you are ok with having tax due on the return.

[Aguilar]

If you can accurately estimate your 2021 taxable income and tax credits, then you can calculate the amount of tax liability you will have for 2021. More info is needed if you are looking for step by step numbers (filing status, deductions, credits, etc.)

Then you would withhold an amount to try and match your tax liability or at least enough to meet one of the safe harbors if you are ok with having tax due on the return.

Thanks, I updated the original post. Does what I added make sense?

[MrJedi]

If you can accurately estimate your 2021 taxable income and tax credits, then you can calculate the amount of tax liability you will have for 2021. More info is needed if you are looking for step by step numbers (filing status, deductions, credits, etc.)

Then you would withhold an amount to try and match your tax liability or at least enough to meet one of the safe harbors if you are ok with having tax due on the return.

Thanks, I updated the original post. Does what I added make sense?

$2177 seems to already take into account there are 8 paychecks left (17,415/8).

You will also need to take into account other income like your dividends like you mentioned for additional tax liability. You need to know your tax brackets to estimate the amount of tax these add.

[Katietsu]

I strongly recommend using TaxCaster for someone like you. I like the smartphone app but you can also use it in a web browser. Here is the link

https://turbotax.intuit.com/tax-tools/c ... taxcaster/


Put in your information like marital status and birthdate. Put the W-2 amount and dividend amount when asked. Put in $0 for withholding.

At the end you will be shown an amount owed. Divide the amount owed by the number of disability checks left for the year. Your answer will be the amount you want taken out of each check. The alternative would be to divide the amount owed by 4 and make estimated tax payments instead of withholding. Your preference.

Do you also need to be concerned about state income tax?

[Aguilar]

If you can accurately estimate your 2021 taxable income and tax credits, then you can calculate the amount of tax liability you will have for 2021. More info is needed if you are looking for step by step numbers (filing status, deductions, credits, etc.)

Then you would withhold an amount to try and match your tax liability or at least enough to meet one of the safe harbors if you are ok with having tax due on the return.

Thanks, I updated the original post. Does what I added make sense?

$2177 seems to already take into account there are 8 paychecks left (17,415/8).

You will also need to take into account other income like your dividends like you mentioned for additional tax liability. You need to know your tax brackets to estimate the amount of tax these add.

good catch.

I'm going to assume $17.5k total ordinary div/$15.5k qualified div in 2021. I'll be in the 24% bracket. So that's an addtl $4200.

total expected income is $113k + $17.5k = $130,500
$118k income after standard deduction

Income tax expected to owe:
bracket: 10% ($9950) = $995
bracket: 12% ($9951-40525) = $3669
bracket: 22% ($40526-86375) = $10090
bracket: 24% ($86376-118000) = $7590
Total income tax expected to owe: $22340

divided by 8 paychecks left = $2793 FIT to withhold per check

Does that make sense?

[FiveK]

I'm going to assume $17.5k total ordinary div/$15.5k qualified div in 2021. I'll be in the 24% bracket. So that's an addtl $4200.

total expected income is $113k + $17.5k = $130,500
$118k income after standard deduction

Qualified dividends are taxed at a lower rate so $20,934 would be the federal tax on that income (based on the 2021 personal finance toolbox).

$20,934/8 = $2617/mo.

[Aguilar]

I'm going to assume $17.5k total ordinary div/$15.5k qualified div in 2021. I'll be in the 24% bracket. So that's an addtl $4200.

total expected income is $113k + $17.5k = $130,500
$118k income after standard deduction

Qualified dividends are taxed at a lower rate so $20,934 would be the federal tax on that income (based on the 2021 personal finance toolbox).

$20,934/8 = $2617/mo.

Thanks, I'll elect to withhold $2617 from the rest of my disability checks for the year.

[Kenkat]

Ignore if I am stating something that you already know, but if your disability payments are from a private policy that you paid for with after tax dollars, the payments are not taxable. If it is employer paid disability coverage, they are taxable.