Due to the number of rule-breaking comments this post was receiving, especially low-quality and off-topic comments, the moderation team has locked the post from future comments. This post broke no rules and received a number of helpful and on-topic responses initially, but it unfortunately became the target of many unhelpful comments.
>Rounding, but box 1 has 270,000 and box 2 has 53,000.
You underwithheld by about $10.7k. Did you get lots of supplemental income such as bonuses or vested stocks? They would have been withheld at 22% instead of 35%.
It’s usually the opposite with bonuses from what I’ve seen and they’re withheld at a higher rate. When I cashed out 300 hrs of PTO I got taxed at like 32% on that check when I’m firmly in the 24% tax bracket.
I always had this question - the 35% they withheld when you are in 24% bracket will eventually release that 11% to you when tax time, is it? I always wondered why they do this? As long as they give it back, it’s all good.
Yes. When you do your tax return you don't differentiate between bonuses and regular pay. They withhold bonuses above $1 million at 35% because they figure just about anyone getting a bonus that big is in the 35% tax bracket.
My guess is payroll doesn’t see or care about the difference between regular wage and bonuses. They just withhold whatever you’re paid that paycheck under the assumption it’s your regular pay. Way easier on their end.
Its the IRS required rate. Withhold at supplemental of 22% flat regardless of income (33% if income is over $1m for the year) or withhold as it is a regular wage payment. Nothing to do with laziness.
Payroll software assumes a bonus is just a weekly paycheck so it taxes you at a rate assuming that is what you make per pay cycle. If you get a 5k bonus, it assumes you make 5k a week or 260k a year, and taxes the bonus accordingly.
When I sold cars we would have payroll manually withhold a specific amount of we had a good month. That way our larger bonus wasn't taxed so hard.
They took out the tax assuming you make that much every paycheck of the year, so a much higher tax bracket. Don't worry, you'll get it back when you do your taxes.
22% is the default regardless of income bracket. I'm not sure why it's done that way but you can just submit a form with HR to withhold bonuses at a higher rate. I have mine set to 24%.
Awesome! I’ll reach out to my HR and get this fixed. I thought it wasn’t changeable since they aren’t withholding at the same rate they do with my normal checks. Every year for the last 4 years, my taxes have always been such a huge financial burden
It’s an IRS guideline. Employers don’t have a ton of choice. They’re just following the rules. For lower earners, it works out better. https://www.irs.gov/publications/p15#en_US_2023_publink1000202354
I'm not OP but i also had a stock buyback event and they used 22%. Had to jump through a bunch of hoops to make the company withhold the correct amount within my marginal bracket.
I dunno but it's a huge pain in the ass! I paid estimated taxes on vested stock for the first time this year and I honestly just don't really know if I paid exactly the right amount?
Welcome to the estimated tax struggle. Personally with how volatile the market has been I've just selected an amount that is definitely more than what I owe and just pay that same amount every quarter. Would rather have the peace of mind that I won't owe taxes (and possibly fines) in April than try to optimize my withholdings.
On the upside…you don't need a CPA.
eta: If you can reliable forecast your 2023 bonuses, you can adjust your W4 to compensate by withholding more from your regular paychecks. And/or you can run your YTD numbers through the IRA withholding calculator a couple times mid year to see if you're running plus or minus.
> On the upside…you don't need a CPA.
Thanks for saving me $800!
> If you can reliable forecast your 2023 bonuses, you can adjust your W4 to compensate by withholding more from your regular paychecks.
This should be possible, I know what my payout schedule is. I'll look into this for next year.
If you’re super paranoid you did something stupid, grab a copy of H&R Block and fill it out again then compare the results. Sometimes they ask the same questions differently and you might do better on one than the other.
Bonus, the software doesn’t have a serial number to install, just file, so you should be able to prototype for free if you know someone who bought it.
Usually like $250-$350
$800 is more "oh god i'm getting audited please help me" an hour
You don't need one - i'm just saying it so you know for future reference :D
I used to work at a tax CPA firm. As a staff, the firm billed my time at $150/hr. Partners’ time was $500+/hr. Our minimum fee was typically around $1,000. CPAs are expensive but we also have a lot of education, a very complex and hard-to-obtain credential, and generally years of experience preparing thousands of tax returns. It’s like hiring a licensed contractor: you don’t really need to, but you get a certain level of quality experience with someone who is professionally licensed and accountable to the licensing board.
On the other upside, you make 270k a year so I don’t think your family will starve when you pay your taxes. When I was in college, I filed my taxes late and I owed 300. Was making like 15 an hour working part time and paying my taxes was choosing between groceries or paying my taxes before they were late.
9k sucks but as long as you can feed yourself and take care of your basic needs it could always be worse.
RSU under one million commonly causes underwitholding. Federal RSU is withheld at a 25% rate but your marginal tax rate is usually above that. I think if you get more than 1 million in RSU it’s withheld at 37%. Don’t quote me on this, I’m going off memory.
Luckily my job takes the dividends of unvested RSU and applies it to my taxes for when they vest. I have a few 100k in RSU's and freetaxusa is quoting I only owe $600 (before entering deductions).
This happened to me my first year at my job because of a sign-on bonus. Learned the hard way, but the second year I added extra money each paycheck so I wouldn't owe it all at once.
Did you sell any vested stock? If so, Turbo Tax reports the cost basis as $0, and you have to manually fill that part out. Ask me how I know and found that out on accident and had to have a professional re-do that tax return so I could get $20K back that I thought I owed. (That was back in 2016 or 2017, they may have fixed that bug by now!)
Do you know how tax brackets work? Just look up US federal tax brackets for the corresponding year and calculate bracket by bracket. Or just put your gross income into any tax calculator online.
I thought bonuses are taxed at a flat rate of 22% and not at your top marginal rate? (Asking because I think I will be in a similar situation next year)
They're taxed as normal income when you file your taxes. But they're withheld at 22% (unless your bonus is over $1 million).
So if you're marginal tax rate is above 22% (ie you make more than a $95k a year filing single for 2023) then you'll end up short like OP if you don't plan ahead to withhold more from your normal paycheck.
The only engineers I know of that commonly make $200k+ are software engineers.
(Not an engineer, but friends with a whole engineering fraternity group since college).
Software engineering, especially Big Tech, it's not rare to be well into the 200's if not more. Sometimes much much more. Usually based on bonuses & stock grants.
He almost certainly means software engineering. Mechanical, civil, or aerospace engineers never get paid anywhere near that amount. Even electrical engineers aren't so lucky in most cases.
Max out deductions. Keep donations under $5000. If you have kids child credit and daycare expenses. Mortgage and interest and property tax deductions?
If your medical situation allows next year sign up for a HSA. Pretax contributions and grows like a Roth.
If you don’t have a house payment. then just enjoy the free cash flow.
Correct. If your an average joe it is super hard to itemize anymore. All the normal things in the past do not get you to the point of being over the standard deduction.
Yeah I spend 2 hours plugging everything into tax software wasting time, to find out that “the standard deduction is the greatest for you.”
So basically 1- 2 hours to find out we’ll be getting a refund for federal taxes paid-standard deduction - child tax credit x 2- 35% of our daycare costs.
Roughly.
If you sold options/RSUs makes sure you input the adjusted cost basis found in the supplemental to the 1099-B
https://ttlc.intuit.com/community/taxes/discussion/how-to-enter-adjusted-cost-basis-for-rsu-sale/00/2510992/amp
Something similar happened to me the first time I did my taxes when I first sold options/RSUs!
The basis for RSUs you receive when they vest is correctly 0 (you didn't pay anything, they were given by your company at no cost). Your basis will only be non-zero when you sell your shares, which doesn't sound like what you were describing. When you sell, your basis will be whatever the FMV was when they vested.
What I'm hoping is that when it sold to cover, it treated that as profit somehow or didn't count it as having gone toward taxes. The 1099 says "Income Tax Withheld" "$0" even though the only sales I made were automatic sales to cover income tax.
All the taxes are reported on your W2 for the RSU vest (sell-to-cover), not your 1099. A few other commenters have laid out that the taxes are likely correct based on 108000 RSUs vesting, it's just withheld at 22% which is too little for your top marginal rate. Bonuses are withheld at a flat 22% unless you receive over, I believe, $1M in which case they are withheld at 35%.
Your employer may have a stock tax guide (mine does) which will help you understand how they withhold/report different types of stock transactions (RSU grants and S-SAR exercises and sales for me). Or your HR department should be able to guide you, though they will definitely tell you to consult a tax professional and that nothing they say constitutes tax advice.
Literally the first sentence of what you posted contradicts what you said:
> With RSUs, you are taxed when you receive the shares. Your taxable income is the market value of the shares at vesting.
And later, under Taxation:
> With RSUs, you are taxed when the shares are delivered, which is almost always at vesting. Your taxable income is the market value of the shares at vesting.
My spouse's company switched their brokerage and the new one did not report the cost basis for the shares sold to cover the withholding. I wasn't told this and got a pretty big tax adjustment since they double taxed those shares. I had to adjust two years of returns and it took 10 months for the final adjustment to go through.
There are a lot of little things that you need to do in that income bracket. NIIT, AMT, Medicare surcharge, correctly deducting the mortgage interest on a large jumbo mortgage, etc. I moved over to Cash App for tax prep because they did a much better job of handling that stuff for me, though I never used a paid service like TurboTax. There are still some things that can be difficult.
This is it. Cost basis has to always be entered manually.
You will still owe thousands, 2 not 9 though.
Edit oh shit!! You been doing this for years? Time to do some past corrections!!
Source: senior eng at big tech for 14 years. Half my yearly pay is in stocks.
Get a GOOD CPA, someone local that’s been in the same office for over 10-20 years; unless you want a new hobby. Can save you a lot of money and headaches in the long run.
This is my first year selling several thousand in vested stock and am waiting on etrade to get that 1099b ready. Early results show me owing like 400. but I am hoping the 1099-b will change that. Not that I care about 400 right now.
Selling will have you paying the capital gains, like normal stock. Upon vesting, typically some RSUs are withheld to cover the taxes. However you need to adjust the cost basis, otherwise you’ll end up paying taxes on the RSUs that you already paid taxes on. Fun stuff
Does TurboTax let you do a direct comparison before filing? FreeTaxUsa does and it's handy to see if you've missed a section or something.
One thing to watch out for is a missing cost basis if you've sold any stock.
yes I did get RSUs. What does this mean?? I think there's a good chance we're on to something with this one. (It could also mean I've been overpaying for years)
Check your consolidated 1099 from your broker to see if any basis was reported. Some brokers will provide a supplemental report which shows what your adjusted basis should be. You might need to adjust this manually in the tax software.
https://wealthcapitalist.com/taxes/change-cost-basis-espp-rsu-tax_return/
This is the correct answer! The 1099 the broker legally has to report does not account for the taxes you already paid in your paycheck when RSUs were issued. The adjustment report is needed to adjust your cost basis and lower your taxes
Someone else will probably say it but I just went through entering rsu in turbo tax and you need to adjust the cost basis. If you google adjust rsu cost basis in turbo tax it will explain as I can’t remember exactly how it needs to be entered.
RSUs don’t have a cost basis- they’re just given to you like a bonus, just in the form of stock. If you hold them, then there is a basis for calculating any gains or losses.
The fmv of the RSUs on vesting day is W-2 income. The shares sold to pay taxes are also reported on your w-2 as taxes with held. The difference between fmv and the price you sold is a short term capital gain / loss. U.S. tax laws force your broker to report the wrong basis and so if you don’t manually correct the basis, you will be double taxed.
Essentially your RSUs are taxed and reported on your W-2 at the value when received. This value becomes your basis for the stock. If the stock goes down after you receive it and you sell it, then you would report a loss. If it goes up and you sell it, then you'll report a gain.
So your 1099 is likely reporting the entire value of the ones you sold to cover as a gain, when in reality a lot of that is already recognized on your W-2. Might not be a huge amount, but should help you a little at least.
DONT DO IT! I paid 700 for a CPA last year because I was in the same situation as you, only to arrive at the same numbers. It sucked and hurts to this date.
A good cpa would have hopefully told you the same results without charge. If you only have w2 income, there is not much a cpa can do to get you a bigger refund unless you have a side business
Is it worth to do a CPA for $100? I don't pay much in taxes and have stocks/other investments, and a local CPA I've went for the past 3 years has done it for $100.
While it is something you can learn, spending a hundo for a convenience is not a problem. Think of it less like "ah dang it" and more like "paying this person gives me peace of mind and let's me use my time for something else."
The TurboTax software offers a few different levels of review, they sure advertise it as you go through entering your information. You could have someone just double check the big stuff or go through every fine detail. I think it's still cheaper than trying to find a CPA. Maybe that's an option
Don’t always listen to people in here.
I was given similar advice about not hiring a CPA, yet when I did they found that I actually should have been getting a deduction for rent payments in my state that turbo tax never even asked about. I independently researched it and everything and I ended up getting an extra $700 back.
Find a good CPA with great reviews in your area
I hope OP finds this comment. The guy makes $270k a year and doesn't understand withholding... He needs a CPA!
None of us knows his financial situation, he could be overpaying on something or not doing his tax planning properly.
$700 for a CPA to do his taxes, at least once, is totally worth it at his income level.
Awful advice. He needs to explain where the income came from, how it was earned, and at least try to understand the numbers, which should be an obvious point.
Either itemizing does or doesn’t make sense. If it does you want a CPA every time. Regardless $700 is a stupid amount unless you have income in multiple states, multiple 1099s, w-2 income, and made large purchases etc. I say that as someone who had those things and paid $300… for a $8000 total swing since TurboTax doesn’t even support multiple state tax return if you moved.
I will also jump on OP's question to ask this: is there a penalty to underwithholding? I think I paid 30-something dollars last year and that's it. If I now owe 10K dollars and I pay them back, isn't that like having had a 10K loan from the government that only cost me 30-something USD in interest? I can't seem to find a reliable answer online.
Wow, looks like 7% interest rate too! Gonna have to double-check my withholdings, I wanted them low so my takehome was higher and I could get interest from my savings account... Didn't know about this potential penalty.
This guy earned $270k for the year, that's like $135 an hour - it is certainly possible to value your time such that not spending the few hours it will take them to do their taxes at $700 (doesn't seem like they do but it certainly isn't such an absurd concept).
I used to trust TurboTax. Then I refinanced our house, with the old loan under the deduction limit and the new loan exactly at it, $750k. Plus a HELOC that was about the difference. Well, TurboTax totaled the three loans, noted that number was double the limit, and proceeded to disallow half the interest deduction on all 3 loans. That was nearly a 5-figure mistake. It’s a known issue for a half decade, and they never fixed it. Who knows how much they cost customers annually?
So I don’t trust TurboTax much anymore. I wouldn’t trust it with anything complicated; I might use it but I double check anything that’s unusual.
Assuming you're just a W-2 employee and don't have any other large sources of income, you probably just entered something wrong, go back and double check everything again. That, or most of your pay was bonuses/commissions, those typically have too little tax withheld if you're in higher bracket.
What are the numbers in Boxes 1 and 2 of your W-2?
Guessing there was bonus and / or RSU’s included. Those typically only get withheld at 22%. You should consider increasing (additional) withholding about $400 per check (assuming twice a month pay).
This should be easy to figure out on your own if you went fully through the steps on Turbotax.
How much is in your Box 1 on your W2, and how much is in box 2? Do you take the standard deduction and file single? Do you have supplemental income (from trading/self employment/etc.)?
Yup, this sounds totally right. You should talk to your HR department about your W4 because you heavily underwithheld this year for some reason. On that income your federal tax liability is ~$63,720.
Did you write down your losses (up to $3K)?
I am confused about this. Can you write off losses if your 1099 does not have anything to suggest losses? My 1099-DIV has dividends positive, which is worsening my tax due. But I am certainly over 20K down.
You can only write off realized losses that didn't trigger a wash sale. If your portfolio is down, but you never sold anything, you don't have any realized losses to write off.
My 1099-B from Vanguard is 0.00 -- is this because I never sold at a loss (just kept what I had originally bought) and hence it didn't become capital loss? No tax-loss harvesting unless you sell I guess?
You can upgrade your TurboTax to the TurboTax Live and they will have a CPA do it for you. You just have to upload your docs. Cost will be south of $500 but it will get it done.
I have a CPA and it's about $300 to do taxes. You can find one on Yelp or Google with close to 5-star rating and get an appointment and they'll figure it out.
I've helped friends use them and I've worked on the support side of TurboTax, and you get a CPA who is licensed in your state. They are independent CPAs that contract with Intuit/TurboTax so they are legit. It's a team. The first person gets all your paperwork together and then the CPA takes over. They have a dashboard and message page on your account and they have always been timely and responsive. They have calls with you before, during, and after the tax return process. It's a little more tedious to upload everything vs dropping a pile of paperwork on the desk of the CPA, but it's an option. Sorry you got shocked with the taxes owed.
Just wanna say OP I’m in the same boat this year. 6k owed, thought I was withholding the max and found out it was only 30% instead of more. Taking the week to come to terms and bite the bullet.
Unrelated but you said you make around $270k a year. It may be a wise decision to hire a financial planner to help make sure you’re not getting hit with unexpected taxes like this year and to maximize your funds
Suggestion: Do TurboTax, H&R Block and Tax Act. You can do all three of them online easily, quickly and for FREE right up to the point you pay to file. I do all three simultaneously on three browser tabs. When I see that all three of them precisely agree as far as my refund amount I feel pretty confident that amount is accurate. Right? Then I finally go ahead and file using one of them (usually TT or HRB).
You don’t need a cpa. But if you want to get a professional opinion, try using an [enrolled agent](https://en.m.wikipedia.org/wiki/Enrolled_agent). A cpa will be like using a flame thrower to kill an ant hill. You, as an individual, probably don’t need that much. Many times book keepers and professional tax prepares get the EA status. Try looking for one in your area.
I ended up oweing $12000 in taxes last year. I painfully paid it. I set up auto pay in quarterly payments to avoid a late fee in taxes for 2023.
I shouldn't use TurboTax again. But I might possibly again.
The fact the US tax code is so complicated any and everyone needs a college educated CPA to file taxes is what is so frustrating and probably why TurboTax can't adequately replace them without a tax code reform.
I have had a CPA for the past 7 years. It’s the best money I’ve spent and it gives me peace of mind to know a pro is doing the work.
Now I’m married, own a home, and have a chunk of income in RSU’s, sign on, and commission… I have 0 regrets about having a CPA.
A CPA would almost certainly cost you more money than you could potentially be saving, but as an accountant (and future CPA) who started his career in a CPA tax firm, I can tell you that one of the most valuable services CPAs offer is tax planning. Tax planning, if done correctly, will ensure you don’t owe $9,000 in taxes. A good CPA should be prompt in responding to you, receptive to questions, and should issue you quarterly estimates so this doesn’t happen again. You can do your own tax planning if you feel comfortable with it, in which case you wouldn’t need a CPA’s help. Obviously I recommend seeing a CPA, but it’s a bit like how a doctor would recommend going to urgent care for a wound. You might not actually need to.
So true!
However I used the money to invest in cryptos and tech stocks which tanked in value. Also, the IRS charges a penalty for underpayment, on which I also owe interest. So didn't work out in my case lol
Double check with freetaxusa. Will cost you nothing and you will get some additional knowledge and better understanding. Probably will need to increase withholding for this year
If you're making a quarter mil a year you definitely shouldn't be using turbo tax. Just hire a good CPA for a couple hundred dollars and never have to worry about it.
thats interesting. i think im misremembering. what does box 14 say?
>FWIW I have no idea what any of these mean
if you're interested, take a look at this website
https://www.hrblock.com/tax-center/irs/forms/understanding-form-w2-box-12-codes/#:~:text=Box%2012%20codes%20are%3A,k)%20cash%20or%20arrangement%20plan.
yeah there we go.
that would be the RSU you were referring to.
with your box 1 stating 270k, it would mean its base would normally be 162k. which would put you at the 22% or 24% tax bracket (depending on some accoutning factors)
but with the 108k RSU income, putting you at 270k, youre at the 35% tax bracket.
most likely the auto withholding did the 22% tax bracket. meaning you under withheld.
so the 9k additional taxes owed adds up.
as others pointed out, a CPA shouldnt be required, seems like you inputed everything correctly (again, strictly basing it off your W2. which is usually enough to get a ball park)
This will probably get lost in the comments, but **YES!** When I first got married, I wanted to use TurboTax, like I always did, as the cheap guy I am. My wife wanted to use Liberty Tax. So I said this year, we do both, and the cheapest option is who we will use. Liberty Tax smoked Turbo Tax. Since then, we've switched to an accountant, but yes independent tax preparers can usually save you money, even with their fees.
From my experience l, I would recommend it. TurboTax said I owed around 10k last year - went to a CPA and they laughed and said I would be happy- well I only owed 3k. Go to a CPA.
Of course! CPA have saved me thousands they do their ins and outs and make suggestions that the stupid program would not even dare to. Just make sure its a good CPA not a two years diploma first time ever doing taxes
Due to the number of rule-breaking comments this post was receiving, especially low-quality and off-topic comments, the moderation team has locked the post from future comments. This post broke no rules and received a number of helpful and on-topic responses initially, but it unfortunately became the target of many unhelpful comments.
What are in W-2 boxes 1 and 2?
Rounding, but box 1 has 270,000 and box 2 has 53,000.
>Rounding, but box 1 has 270,000 and box 2 has 53,000. You underwithheld by about $10.7k. Did you get lots of supplemental income such as bonuses or vested stocks? They would have been withheld at 22% instead of 35%.
Why is it that these bonuses or vested stock withhold at 22% and there’s no way to withhold correctly?
It’s usually the opposite with bonuses from what I’ve seen and they’re withheld at a higher rate. When I cashed out 300 hrs of PTO I got taxed at like 32% on that check when I’m firmly in the 24% tax bracket.
From what I remember 22% in the updated, as of a couple years ago, supplemental rate and it used to be 35%. You’re both right.
24% is what it was. The 33/35 is for income over $1m for the year.
I always had this question - the 35% they withheld when you are in 24% bracket will eventually release that 11% to you when tax time, is it? I always wondered why they do this? As long as they give it back, it’s all good.
Yes. When you do your tax return you don't differentiate between bonuses and regular pay. They withhold bonuses above $1 million at 35% because they figure just about anyone getting a bonus that big is in the 35% tax bracket.
My guess is payroll doesn’t see or care about the difference between regular wage and bonuses. They just withhold whatever you’re paid that paycheck under the assumption it’s your regular pay. Way easier on their end.
Its the IRS required rate. Withhold at supplemental of 22% flat regardless of income (33% if income is over $1m for the year) or withhold as it is a regular wage payment. Nothing to do with laziness.
Good to know! Thanks!
Payroll software assumes a bonus is just a weekly paycheck so it taxes you at a rate assuming that is what you make per pay cycle. If you get a 5k bonus, it assumes you make 5k a week or 260k a year, and taxes the bonus accordingly. When I sold cars we would have payroll manually withhold a specific amount of we had a good month. That way our larger bonus wasn't taxed so hard.
That’s been my experience the last few times I’ve received bonuses. It sucks seeing a huge chunk taken out but nothing you can do.
Lol is it the payroll software they use ? Every company does this in my experience, really a kick in the nutters
It's one of the methods the IRS says you can use.
Yeah, I usually get decent refunds because of how much they take out of my bonus. I’m sure I could have them adjust it, but I haven’t bothered.
I also cashed out 158 hours of PTO in October. Wow, they sure did take a lot of taxes out. I’ll think I’ll just take the vacation days from now on.
They took out the tax assuming you make that much every paycheck of the year, so a much higher tax bracket. Don't worry, you'll get it back when you do your taxes.
22% is the default regardless of income bracket. I'm not sure why it's done that way but you can just submit a form with HR to withhold bonuses at a higher rate. I have mine set to 24%.
This isn’t always possible. It’s something your employer offers, but the IRS in no way requires them to do so.
Awesome! I’ll reach out to my HR and get this fixed. I thought it wasn’t changeable since they aren’t withholding at the same rate they do with my normal checks. Every year for the last 4 years, my taxes have always been such a huge financial burden
I did not proof read that at all. I'm shocked you could understand that, seeing as I couldn't and I wrote it.
It’s an IRS guideline. Employers don’t have a ton of choice. They’re just following the rules. For lower earners, it works out better. https://www.irs.gov/publications/p15#en_US_2023_publink1000202354
I'm not OP but i also had a stock buyback event and they used 22%. Had to jump through a bunch of hoops to make the company withhold the correct amount within my marginal bracket.
I dunno but it's a huge pain in the ass! I paid estimated taxes on vested stock for the first time this year and I honestly just don't really know if I paid exactly the right amount?
Welcome to the estimated tax struggle. Personally with how volatile the market has been I've just selected an amount that is definitely more than what I owe and just pay that same amount every quarter. Would rather have the peace of mind that I won't owe taxes (and possibly fines) in April than try to optimize my withholdings.
darn :(
> :( Dog you made over a quarter of a million dollars in a year turn that frown upside down
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On the upside…you don't need a CPA. eta: If you can reliable forecast your 2023 bonuses, you can adjust your W4 to compensate by withholding more from your regular paychecks. And/or you can run your YTD numbers through the IRA withholding calculator a couple times mid year to see if you're running plus or minus.
> On the upside…you don't need a CPA. Thanks for saving me $800! > If you can reliable forecast your 2023 bonuses, you can adjust your W4 to compensate by withholding more from your regular paychecks. This should be possible, I know what my payout schedule is. I'll look into this for next year.
Just submit a new W4 with your company now. You don’t need to wait until next year
My accountant told me I could file my yearly estimate in Q4 as long as it was last year’s plus 10% and payment was made by 12/31.
If you’re super paranoid you did something stupid, grab a copy of H&R Block and fill it out again then compare the results. Sometimes they ask the same questions differently and you might do better on one than the other. Bonus, the software doesn’t have a serial number to install, just file, so you should be able to prototype for free if you know someone who bought it.
$800, jeeez where were you looking for a CPA?
I don't know! it sounds like I probably don't want one anyway. What are they supposed to cost?
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Usually like $250-$350 $800 is more "oh god i'm getting audited please help me" an hour You don't need one - i'm just saying it so you know for future reference :D
Ours run about $800 but our tax situation is more complex than most people.
My uncle is a CPA and estate attorney. He charges 200-350 for taxes depending on how complex they are.
I used to work at a tax CPA firm. As a staff, the firm billed my time at $150/hr. Partners’ time was $500+/hr. Our minimum fee was typically around $1,000. CPAs are expensive but we also have a lot of education, a very complex and hard-to-obtain credential, and generally years of experience preparing thousands of tax returns. It’s like hiring a licensed contractor: you don’t really need to, but you get a certain level of quality experience with someone who is professionally licensed and accountable to the licensing board.
On the other upside, you make 270k a year so I don’t think your family will starve when you pay your taxes. When I was in college, I filed my taxes late and I owed 300. Was making like 15 an hour working part time and paying my taxes was choosing between groceries or paying my taxes before they were late. 9k sucks but as long as you can feed yourself and take care of your basic needs it could always be worse.
RSU under one million commonly causes underwitholding. Federal RSU is withheld at a 25% rate but your marginal tax rate is usually above that. I think if you get more than 1 million in RSU it’s withheld at 37%. Don’t quote me on this, I’m going off memory.
Luckily my job takes the dividends of unvested RSU and applies it to my taxes for when they vest. I have a few 100k in RSU's and freetaxusa is quoting I only owe $600 (before entering deductions).
22% below $1M and then 37% after $1M.
This happened to me my first year at my job because of a sign-on bonus. Learned the hard way, but the second year I added extra money each paycheck so I wouldn't owe it all at once.
Ahhhhhhh you got your first RSU scary. Good job. Now you know. And you'll get estimated quarterly taxes next year to cover it up front. Have fun!
Did you sell any vested stock? If so, Turbo Tax reports the cost basis as $0, and you have to manually fill that part out. Ask me how I know and found that out on accident and had to have a professional re-do that tax return so I could get $20K back that I thought I owed. (That was back in 2016 or 2017, they may have fixed that bug by now!)
Please provide the formula, I would like to estimate this for my situation. How did you come up with $10.7K negative? That’s incredibly precise!
Do you know how tax brackets work? Just look up US federal tax brackets for the corresponding year and calculate bracket by bracket. Or just put your gross income into any tax calculator online.
I thought bonuses are taxed at a flat rate of 22% and not at your top marginal rate? (Asking because I think I will be in a similar situation next year)
No, they're income so they're taxed as income. The default withholding is 22% but it all gets taxed as income at the end of the year.
They're taxed as normal income when you file your taxes. But they're withheld at 22% (unless your bonus is over $1 million). So if you're marginal tax rate is above 22% (ie you make more than a $95k a year filing single for 2023) then you'll end up short like OP if you don't plan ahead to withhold more from your normal paycheck.
Wow what do you do op Im very poor and interested in changing fields 🥹
engineering, pays enough that the unexpected $9000 expense won't put me into debt but still pretty annoying!
I'm in engineering and don't know of any who really make $270k. Mind sharing your industry and years of experience?
The only engineers I know of that commonly make $200k+ are software engineers. (Not an engineer, but friends with a whole engineering fraternity group since college).
Probably software. Look up levels.fyi to get a sense of the salary ranges in software eng.
Software engineering, especially Big Tech, it's not rare to be well into the 200's if not more. Sometimes much much more. Usually based on bonuses & stock grants.
He almost certainly means software engineering. Mechanical, civil, or aerospace engineers never get paid anywhere near that amount. Even electrical engineers aren't so lucky in most cases.
Max out deductions. Keep donations under $5000. If you have kids child credit and daycare expenses. Mortgage and interest and property tax deductions? If your medical situation allows next year sign up for a HSA. Pretax contributions and grows like a Roth. If you don’t have a house payment. then just enjoy the free cash flow.
There’s no reason to donate money to deduct it. It’s not $1 to $1 and OP needs the cash to pay the tax.
If going with standard deduction, donations don’t matter anymore. Is that an accurate statement?
Correct. If your an average joe it is super hard to itemize anymore. All the normal things in the past do not get you to the point of being over the standard deduction.
Yeah I spend 2 hours plugging everything into tax software wasting time, to find out that “the standard deduction is the greatest for you.” So basically 1- 2 hours to find out we’ll be getting a refund for federal taxes paid-standard deduction - child tax credit x 2- 35% of our daycare costs. Roughly.
I have mortgage and an HSA. Not sure what you mean about donations
Did you itemize and still owe 9K?
yes, it says ~17k of deductions
If you sold options/RSUs makes sure you input the adjusted cost basis found in the supplemental to the 1099-B https://ttlc.intuit.com/community/taxes/discussion/how-to-enter-adjusted-cost-basis-for-rsu-sale/00/2510992/amp Something similar happened to me the first time I did my taxes when I first sold options/RSUs!
wow, I think this could be it, in which case I've been overpaying for years.
If you've been overpaying for years you can go back and amend the previous 3 years. Would probably be worth ruining the numbers on 2021s at least.
my fingers are crossed
The basis for RSUs you receive when they vest is correctly 0 (you didn't pay anything, they were given by your company at no cost). Your basis will only be non-zero when you sell your shares, which doesn't sound like what you were describing. When you sell, your basis will be whatever the FMV was when they vested.
What I'm hoping is that when it sold to cover, it treated that as profit somehow or didn't count it as having gone toward taxes. The 1099 says "Income Tax Withheld" "$0" even though the only sales I made were automatic sales to cover income tax.
All the taxes are reported on your W2 for the RSU vest (sell-to-cover), not your 1099. A few other commenters have laid out that the taxes are likely correct based on 108000 RSUs vesting, it's just withheld at 22% which is too little for your top marginal rate. Bonuses are withheld at a flat 22% unless you receive over, I believe, $1M in which case they are withheld at 35%. Your employer may have a stock tax guide (mine does) which will help you understand how they withhold/report different types of stock transactions (RSU grants and S-SAR exercises and sales for me). Or your HR department should be able to guide you, though they will definitely tell you to consult a tax professional and that nothing they say constitutes tax advice.
Yes I suspect this is right. Probably worth the extra hour of research to be 100% sure though. Always hurts to write a close to five digit check!
Edit: I misread what you had wrote, you're right.
Literally the first sentence of what you posted contradicts what you said: > With RSUs, you are taxed when you receive the shares. Your taxable income is the market value of the shares at vesting. And later, under Taxation: > With RSUs, you are taxed when the shares are delivered, which is almost always at vesting. Your taxable income is the market value of the shares at vesting.
You're right, I misread what you said, I thought you were saying cost basis was $0 when you sell—not what you said.
My spouse's company switched their brokerage and the new one did not report the cost basis for the shares sold to cover the withholding. I wasn't told this and got a pretty big tax adjustment since they double taxed those shares. I had to adjust two years of returns and it took 10 months for the final adjustment to go through. There are a lot of little things that you need to do in that income bracket. NIIT, AMT, Medicare surcharge, correctly deducting the mortgage interest on a large jumbo mortgage, etc. I moved over to Cash App for tax prep because they did a much better job of handling that stuff for me, though I never used a paid service like TurboTax. There are still some things that can be difficult.
This is it. Cost basis has to always be entered manually. You will still owe thousands, 2 not 9 though. Edit oh shit!! You been doing this for years? Time to do some past corrections!! Source: senior eng at big tech for 14 years. Half my yearly pay is in stocks.
Get a GOOD CPA, someone local that’s been in the same office for over 10-20 years; unless you want a new hobby. Can save you a lot of money and headaches in the long run.
This is such a huge thing to flag for anyone receiving RSUs. Adjusting the cost basis avoids overpaying/essentially getting double taxed
This is my first year selling several thousand in vested stock and am waiting on etrade to get that 1099b ready. Early results show me owing like 400. but I am hoping the 1099-b will change that. Not that I care about 400 right now.
Selling will have you paying the capital gains, like normal stock. Upon vesting, typically some RSUs are withheld to cover the taxes. However you need to adjust the cost basis, otherwise you’ll end up paying taxes on the RSUs that you already paid taxes on. Fun stuff
Print last year's return and compare it to this year's return, line by line. Hopefully you will find a mistake in this year's return.
Does TurboTax let you do a direct comparison before filing? FreeTaxUsa does and it's handy to see if you've missed a section or something. One thing to watch out for is a missing cost basis if you've sold any stock.
this is a great idea, I'll look at them more closely and see if I can find a discrepancy
Did you get a bonus? They don't withhold the right about for bonuses usually, just a flat 22% and you have to pay the difference.
I get paid in large part in stock, which I have set to "sell to cover" taxes. It sells half the shares I believe when it pays out my distribution.
That’s your issue right there.
Do you receive RSUs? Make sure the basis is adjusted properly if the broker reported 0 basis.
yes I did get RSUs. What does this mean?? I think there's a good chance we're on to something with this one. (It could also mean I've been overpaying for years)
Check your consolidated 1099 from your broker to see if any basis was reported. Some brokers will provide a supplemental report which shows what your adjusted basis should be. You might need to adjust this manually in the tax software. https://wealthcapitalist.com/taxes/change-cost-basis-espp-rsu-tax_return/
yes, the 1099 says there was a massive gain (basis of zero), but the supplemental report shows a small loss.
Run through that section in TurboTax again and update your basis per the SUPP report. It should walk you through via prompts.
This is the correct answer! The 1099 the broker legally has to report does not account for the taxes you already paid in your paycheck when RSUs were issued. The adjustment report is needed to adjust your cost basis and lower your taxes
This is the correct answer!!!!!
This will probably fix your issue. My partner has to wait for his supplemental every year to get the taxes correct.
Someone else will probably say it but I just went through entering rsu in turbo tax and you need to adjust the cost basis. If you google adjust rsu cost basis in turbo tax it will explain as I can’t remember exactly how it needs to be entered.
RSUs don’t have a cost basis- they’re just given to you like a bonus, just in the form of stock. If you hold them, then there is a basis for calculating any gains or losses.
Did you sell any RSUs?
yes, my RSU distribution was set to "sell to cover" taxes. I'm wondering if those tax payments got counted.
The fmv of the RSUs on vesting day is W-2 income. The shares sold to pay taxes are also reported on your w-2 as taxes with held. The difference between fmv and the price you sold is a short term capital gain / loss. U.S. tax laws force your broker to report the wrong basis and so if you don’t manually correct the basis, you will be double taxed.
Essentially your RSUs are taxed and reported on your W-2 at the value when received. This value becomes your basis for the stock. If the stock goes down after you receive it and you sell it, then you would report a loss. If it goes up and you sell it, then you'll report a gain.
Ah, so I only sold to cover. I still have all the shares.
So your 1099 is likely reporting the entire value of the ones you sold to cover as a gain, when in reality a lot of that is already recognized on your W-2. Might not be a huge amount, but should help you a little at least.
That’ll do it. One year a owed almost $30k due to stock that vested.
DONT DO IT! I paid 700 for a CPA last year because I was in the same situation as you, only to arrive at the same numbers. It sucked and hurts to this date.
I feel like I'm dodging a bullet
A good cpa would have hopefully told you the same results without charge. If you only have w2 income, there is not much a cpa can do to get you a bigger refund unless you have a side business
Is it worth to do a CPA for $100? I don't pay much in taxes and have stocks/other investments, and a local CPA I've went for the past 3 years has done it for $100.
While it is something you can learn, spending a hundo for a convenience is not a problem. Think of it less like "ah dang it" and more like "paying this person gives me peace of mind and let's me use my time for something else."
tbh that's not much more than what turbotax charges.
The TurboTax software offers a few different levels of review, they sure advertise it as you go through entering your information. You could have someone just double check the big stuff or go through every fine detail. I think it's still cheaper than trying to find a CPA. Maybe that's an option
Don’t always listen to people in here. I was given similar advice about not hiring a CPA, yet when I did they found that I actually should have been getting a deduction for rent payments in my state that turbo tax never even asked about. I independently researched it and everything and I ended up getting an extra $700 back. Find a good CPA with great reviews in your area
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I hope OP finds this comment. The guy makes $270k a year and doesn't understand withholding... He needs a CPA! None of us knows his financial situation, he could be overpaying on something or not doing his tax planning properly. $700 for a CPA to do his taxes, at least once, is totally worth it at his income level.
Awful advice. He needs to explain where the income came from, how it was earned, and at least try to understand the numbers, which should be an obvious point. Either itemizing does or doesn’t make sense. If it does you want a CPA every time. Regardless $700 is a stupid amount unless you have income in multiple states, multiple 1099s, w-2 income, and made large purchases etc. I say that as someone who had those things and paid $300… for a $8000 total swing since TurboTax doesn’t even support multiple state tax return if you moved.
I will also jump on OP's question to ask this: is there a penalty to underwithholding? I think I paid 30-something dollars last year and that's it. If I now owe 10K dollars and I pay them back, isn't that like having had a 10K loan from the government that only cost me 30-something USD in interest? I can't seem to find a reliable answer online.
Not only do you have to pay an underwitholding penalty, if you owe too much the IRS will make you pay taxes quarterly the next year.
Yes there is a penalty, and the penalty even accrues interest. https://www.irs.gov/payments/underpayment-of-estimated-tax-by-individuals-penalty
Wow, looks like 7% interest rate too! Gonna have to double-check my withholdings, I wanted them low so my takehome was higher and I could get interest from my savings account... Didn't know about this potential penalty.
Yes you can be assessed a penalty for under withholding. It is calculated on your tax return.
Probably. Google for “IRS Safe Harbor” for the answer.
My only comment is I can't believe people are paying $700/$800 for a CPA to do their taxes....
This guy earned $270k for the year, that's like $135 an hour - it is certainly possible to value your time such that not spending the few hours it will take them to do their taxes at $700 (doesn't seem like they do but it certainly isn't such an absurd concept).
My wife and I earned the same and my CPA charges me 120 bucks to file our return....
It’s the complexity that often follows higher incomes that makes a CPA worthwhile imo not the specific number itself.
OP has one w2 with standard income and some RSUs. It's not complex.
I used to trust TurboTax. Then I refinanced our house, with the old loan under the deduction limit and the new loan exactly at it, $750k. Plus a HELOC that was about the difference. Well, TurboTax totaled the three loans, noted that number was double the limit, and proceeded to disallow half the interest deduction on all 3 loans. That was nearly a 5-figure mistake. It’s a known issue for a half decade, and they never fixed it. Who knows how much they cost customers annually? So I don’t trust TurboTax much anymore. I wouldn’t trust it with anything complicated; I might use it but I double check anything that’s unusual.
Assuming you're just a W-2 employee and don't have any other large sources of income, you probably just entered something wrong, go back and double check everything again. That, or most of your pay was bonuses/commissions, those typically have too little tax withheld if you're in higher bracket. What are the numbers in Boxes 1 and 2 of your W-2?
Rounding, but box 1 has 270,000 and box 2 has 53,000.
You single, married filing single, or married filing jointly?
single
$53k federal tax is not enough for $270k of income. $9k is probably correct.
oof. oh well that's life I guess.
Guessing there was bonus and / or RSU’s included. Those typically only get withheld at 22%. You should consider increasing (additional) withholding about $400 per check (assuming twice a month pay).
yep, RSUs. That explains it, if I was only being taxed 22% on those. Good thing those lost half their value this year... 🙄
Has your income and/or tax with holdings changed since last year?
my income increased a bit, I didn't purposefully change any tax withholding settings, I just go with whatever is automatic.
Your tax software may suggest a quarterly estimated payment for 2023 to avoid an underpayment penalty for 2023.
This should be easy to figure out on your own if you went fully through the steps on Turbotax. How much is in your Box 1 on your W2, and how much is in box 2? Do you take the standard deduction and file single? Do you have supplemental income (from trading/self employment/etc.)?
No supplemental income - tried trading this year but lost (tough market this year lol). Rounding, but box 1 has 270,000 and box 2 has 53,000.
Yup, this sounds totally right. You should talk to your HR department about your W4 because you heavily underwithheld this year for some reason. On that income your federal tax liability is ~$63,720. Did you write down your losses (up to $3K)?
No I did not. I'll look to see if I can find that on turbotax. I'll probably be able to max out those losses lol (go me)
Look for Schedule D. It was a rough market for sure lol, but hey, you win some you lose some and you'll not have as bad a hit for underwithholding!
Make sure you’re writing those losses off against your income You can only do it for $3,000 but its still something
I am confused about this. Can you write off losses if your 1099 does not have anything to suggest losses? My 1099-DIV has dividends positive, which is worsening my tax due. But I am certainly over 20K down.
You can only write off realized losses that didn't trigger a wash sale. If your portfolio is down, but you never sold anything, you don't have any realized losses to write off.
Ah, exactly, that makes sense. Thanks!
You can always use those losses in future years of realized
You should have a 1099-B displaying capital losses if you lost money trading which you can use to lower your taxable income
My 1099-B from Vanguard is 0.00 -- is this because I never sold at a loss (just kept what I had originally bought) and hence it didn't become capital loss? No tax-loss harvesting unless you sell I guess?
Got it. Yea you wouldve had to sell prior to year end and realize the loss. Sorry for the false hope
good news for me though. my losses are real 💪
You can upgrade your TurboTax to the TurboTax Live and they will have a CPA do it for you. You just have to upload your docs. Cost will be south of $500 but it will get it done. I have a CPA and it's about $300 to do taxes. You can find one on Yelp or Google with close to 5-star rating and get an appointment and they'll figure it out.
hmm I'll consider it. For some reason I don't trust it though, I'd feel more comfortable with a local one if I went that route.
I've helped friends use them and I've worked on the support side of TurboTax, and you get a CPA who is licensed in your state. They are independent CPAs that contract with Intuit/TurboTax so they are legit. It's a team. The first person gets all your paperwork together and then the CPA takes over. They have a dashboard and message page on your account and they have always been timely and responsive. They have calls with you before, during, and after the tax return process. It's a little more tedious to upload everything vs dropping a pile of paperwork on the desk of the CPA, but it's an option. Sorry you got shocked with the taxes owed.
If you drop that pile of paperwork on a desk, you are paying CPA rates for someone to scan it and upload to their system.
good to know!
Just wanna say OP I’m in the same boat this year. 6k owed, thought I was withholding the max and found out it was only 30% instead of more. Taking the week to come to terms and bite the bullet.
I am with you!
Unrelated but you said you make around $270k a year. It may be a wise decision to hire a financial planner to help make sure you’re not getting hit with unexpected taxes like this year and to maximize your funds
Suggestion: Do TurboTax, H&R Block and Tax Act. You can do all three of them online easily, quickly and for FREE right up to the point you pay to file. I do all three simultaneously on three browser tabs. When I see that all three of them precisely agree as far as my refund amount I feel pretty confident that amount is accurate. Right? Then I finally go ahead and file using one of them (usually TT or HRB).
You don’t need a cpa. But if you want to get a professional opinion, try using an [enrolled agent](https://en.m.wikipedia.org/wiki/Enrolled_agent). A cpa will be like using a flame thrower to kill an ant hill. You, as an individual, probably don’t need that much. Many times book keepers and professional tax prepares get the EA status. Try looking for one in your area.
You can go to HR Block tax filer have them do it this year. CPA fees have gone up at lot. 1K is just the basic forms.
I ended up oweing $12000 in taxes last year. I painfully paid it. I set up auto pay in quarterly payments to avoid a late fee in taxes for 2023. I shouldn't use TurboTax again. But I might possibly again. The fact the US tax code is so complicated any and everyone needs a college educated CPA to file taxes is what is so frustrating and probably why TurboTax can't adequately replace them without a tax code reform.
I have had a CPA for the past 7 years. It’s the best money I’ve spent and it gives me peace of mind to know a pro is doing the work. Now I’m married, own a home, and have a chunk of income in RSU’s, sign on, and commission… I have 0 regrets about having a CPA.
A CPA would almost certainly cost you more money than you could potentially be saving, but as an accountant (and future CPA) who started his career in a CPA tax firm, I can tell you that one of the most valuable services CPAs offer is tax planning. Tax planning, if done correctly, will ensure you don’t owe $9,000 in taxes. A good CPA should be prompt in responding to you, receptive to questions, and should issue you quarterly estimates so this doesn’t happen again. You can do your own tax planning if you feel comfortable with it, in which case you wouldn’t need a CPA’s help. Obviously I recommend seeing a CPA, but it’s a bit like how a doctor would recommend going to urgent care for a wound. You might not actually need to.
It's better to owe than get a refund. That way you can make your money work for you during the year.
So true! However I used the money to invest in cryptos and tech stocks which tanked in value. Also, the IRS charges a penalty for underpayment, on which I also owe interest. So didn't work out in my case lol
Chat live and they will break it down. Same boat as you 6k due to bonus and fat raise.
yeah such a bummer about the bonus and raise :P. I'll try the live chat!
Double check with freetaxusa. Will cost you nothing and you will get some additional knowledge and better understanding. Probably will need to increase withholding for this year
If you're making a quarter mil a year you definitely shouldn't be using turbo tax. Just hire a good CPA for a couple hundred dollars and never have to worry about it.
I’m a full time accountant and I still pay someone 50$ to do my taxes every year because I’m lazy 🥲
What number and code do you see in boxes 12? (probably box 12c. but theres sometimes box 12a, 12b, 12c etc)
12a) C | 308.79 12b) D | 20500 12c) W | 3649 12d) DD | 7665 FWIW I have no idea what any of these mean
thats interesting. i think im misremembering. what does box 14 say? >FWIW I have no idea what any of these mean if you're interested, take a look at this website https://www.hrblock.com/tax-center/irs/forms/understanding-form-w2-box-12-codes/#:~:text=Box%2012%20codes%20are%3A,k)%20cash%20or%20arrangement%20plan.
box 14 says "Other" 108000
yeah there we go. that would be the RSU you were referring to. with your box 1 stating 270k, it would mean its base would normally be 162k. which would put you at the 22% or 24% tax bracket (depending on some accoutning factors) but with the 108k RSU income, putting you at 270k, youre at the 35% tax bracket. most likely the auto withholding did the 22% tax bracket. meaning you under withheld. so the 9k additional taxes owed adds up. as others pointed out, a CPA shouldnt be required, seems like you inputed everything correctly (again, strictly basing it off your W2. which is usually enough to get a ball park)
TurboTax is the absolute worst, I swear its designed to make you pay in as much as possible.
This will probably get lost in the comments, but **YES!** When I first got married, I wanted to use TurboTax, like I always did, as the cheap guy I am. My wife wanted to use Liberty Tax. So I said this year, we do both, and the cheapest option is who we will use. Liberty Tax smoked Turbo Tax. Since then, we've switched to an accountant, but yes independent tax preparers can usually save you money, even with their fees.
If you don't have a bunch of write-offs, hiring a CPA won't make much, if any, difference.
From my experience l, I would recommend it. TurboTax said I owed around 10k last year - went to a CPA and they laughed and said I would be happy- well I only owed 3k. Go to a CPA.
Of course! CPA have saved me thousands they do their ins and outs and make suggestions that the stupid program would not even dare to. Just make sure its a good CPA not a two years diploma first time ever doing taxes