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I just finished updating my spreadsheet for the new year, which means copying all the new tax figures (tax brackets, contribution limits, etc), and I’m excited to see how close I was with my tax planning. I’m unfortunately expecting a sizeable refund this year because my employer did a weird overcorrection when I sent in an updated W-4, and I just gave up. I paid a fee last year because my bonus was significantly lower than expected, which really sucks because I only have 1-2 paychecks to fix my withholding since my bonus hits in Dec.
Anyway, I’m going to try fixing it yet again, so we’ll see if I can dial it in a bit this year.
I’ve just made peace with doing an estimated quarterly tax payment at bonus time, it’s way easier to reason about than the other options.
Isn’t that against IRS regulations? If you have W2 income, you can’t make up for insufficient deferrals with a quarterly tax payment. You can do it for other taxable income (stock sale, side hustle, etc), but you can only send tax payments for that income (though you can pick the method).
Most companies do 22% (more if you have really high bonus income), which may be too high or too low, depending on your marginal bracket. My company seems to try to account for this with other withholdings, which makes it even more complicated to try to plan for since I also opportunistically do Roth conversions, so I messed it up.
Over half my income gets paid out in a variable annual bonus, I literally won’t know what it will be until almost a quarter of the way into a year, and the flat 22% withholding is indeed usually too low and would leave me subject to under withholding penalties many years. As far as I’ve read, anyone can make estimated quarterly payments. There’s definitely requirements about when you make the payment (eg needs to fall within some period of the quarter you receive the income) but I make sure to send the payment around when I receive the bonus. My withholding is sufficient otherwise to cover my non-bonus pay.
Happy first full week of work after the holidays - to everyone still on the grind.
It’s layoff week at my company. I have mixed feelings in that I’m far enough along that I wouldn’t hate a funemployment break, but given I’m not quite at my number yet and the state of the tech market, I’d really hate to start burning through my savings. I just want to know which way the dice rolls for me because it’s really hard to make plans for this next year when it’s 50/50 if I’ll have a job this year.
Update:
Both my spouse and I were informed we are safe (we work for the same company). At least I don’t have to worry about our income being impacted.
Two of the people I work closest with have told me they were cut. I’m hoping there aren’t any more close to me, because I already don’t know how we are going to manage without those two people.
Ah, I’m really sorry to hear that. It’s a stressful place to be. If it’s any consolation, I think many of us understand what you’re going through; I suspect many of us are in the tech industry, since that’s one of the few industries that actually pays well enough to contemplate early retirement, let alone retirement of any kind.
That used to be the rule, with pensions and retirement after 30 years, but now 1950s and '60s-style solidly middle-class salaries that allow for home ownership and a single-earner household are few and far between…
Some people I talk to still have this impression of the tech industry from, like, the Google of 20 years ago (although that impression is fading). I explain to them that the tech industry has been in a multi-year recession. All those perks disappeared long ago. They’ve been replaced with stack ranking, rolling layoffs, and pressure to repeatedly do more with understaffed teams.
I know part of it has to do with the change in corporate R&D tax deductions, but I think the industry also finally realized after the frothy period ending around early 2022 that regular layoffs keep it an employers’ market, and in those controls they really could do more with less, since workers would work harder to avoid the next layoff.
My own retirement is still a long way off. My current target is owning my house outright, so in this uncertainty I’ll never have to worry about getting my savings if I’m laid off for an extended period. If you’re able, I suggest everyone do this. I’m currently debating whether or not to just swallow the short-term capital gains tax in order to get in before the wider economic correction.
Deciding to pay off the mortgage is a tricky decision, especially for those of us who locked in super low rates. I always assumed the best choice was to pay off the mortgage asap (long before I’d learned about FIRE), but with a 2% mortgage I’m inclined to never actually pay it off early. I have more money and flexibility by keeping my savings invested than if I dumped it into my mortgage.
If I had a higher rate (like 5%+), I think I’d be more inclined to agree with you. Though it’d have to be obscenely high rates for me to decide taking the tax hit of selling investments in order to pay off the house.
Yes, that’s true. While I’m fairly risk tolerant in my personal life, I’m not with finances. I invest in index funds and prioritize cash flow. I would rather spend a fixed amount up front for a guaranteed “dividend” (benefit) than be leveraged with more money in the bank.
For example, after my home is paid off, I’ll probably explore a solar roof to reduce my monthly utility expenses. What’s the payoff, like 10-15 years? But knowing I can survive on a small, relatively fixed amount each month means I have more security and flexibility. It’s approaching the same goal, just in a different way.
But I also bought my (latest and probably last) home in late 2022. I have a 7.5% interest rate or something, so, you know, not a particularly difficult decision in my case.
Good luck! The uncertainty really sucks, but hopefully you’re not too stressed.
I was unemployed for a year during COVID (partially by choice, partially because of a tough market), and that really sucked for our savings. We made it through, and hopefully you feel confident that you will as well. I fully expect a market correction sometime in the next year, so I hope you don’t get the perfect storm that screws you over.
