Tax season: we owe 50k

Microsoft Svcuuhds
Jan 20 87 Comments

I’m freaked out. Me and my spouse put our W2 numbers into TurboTax and it says we owe $50k more taxes. Our W4s have zero allowances. Why do we still owe so much?! Is it reasonable to hire a tax consultant to help?

We do not have any weird dividends, don’t have funds nor play at stock market, don’t have second income. At this point I am so freaked out that I am thinking to quit my job because if we pay what TurboTax says us to pay there is no point for me to work.

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TOP 87 Comments
  • Microsoft askj123
    Is your gross income above 400k?
    Jan 20 12
    • Amazon HbeA84
      I'm guessing it's because when she received her vesting of RSUs it was taxed at approximately 23% which is the rate they are withheld across the board instead of the tax bracket you'll actually end up in (approx 37%).
      Jan 20
    • Microsoft Svcuuhds
      OP
      Looks like that’s the case, yes. I’m so glad I asked the question, I had no idea about flat rate for vested stocks!
      Jan 20
    • Atlassian WB2000
      A LOT of folks with RSUs have to deal with this, but it’s worse now than it has been before thanks to the withholding rate dropping from 25% to 22%. It is likely your effective rate didn’t go up a lot compared to last year, but your withholding went down, hence the additional tax due now. Have a tax advisor calculate estimated payments for 2019!
      Jan 21
    • New
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      Y freaking if u both gross 500k combined ? Clearly you have means to pay what you owe ?
      Jan 21
    • Microsoft Svcuuhds
      OP
      Of course I am planning to pay. But I did not expect to owe so much as I expected all taxes were withheld through the employer. So we had other plans on these 50k.
      Jan 21
  • Google Techmeme
    You own vs you owe::: its a big difference dude
    Jan 20 2
    • Microsoft Svcuuhds
      OP
      Ops, fixed. I’m just totally out of my mind now...
      Jan 20
    • Microsoft / Eng Jsnsk
      OP, calm down and reflect on your income. If you owe 50K in Federal income tax then you must make a ton of money or if it's property tax then you own some killer land. It may be a headache but this should be no issue to pay.

      Sell some stock, pay your taxes, and the relax with a nice cold Brew.
      Jan 21
  • Facebook ButterBut
    It’s not because you work. Tax is progressive and it’s always strictly better to have 2 salaries compared to one. But given that you don’t know about that, i honestly advise getting CPA to explain to you how taxation works.

    And for this specific situation, due to the law, you were underpaying taxes, so view that as a loan you got for from Uncle Sam, that you need to pay back now.

    Read how stock vesting is taxed. For anyone making significant amount of money from stocks you WILL underpay taxes, and owe it unless you withheld more form your normal paychecks or do quarterly payments.
    Jan 20 6
    • Facebook ButterBut
      I’m not being an ass, just honestly saying that I don’t think you really understand how taxes work, and it’ll be much better for you to educate.

      Extra $50k in taxes is not connected with you getting salary. Do simulation in turbo tax, exclude your salary and see it for yourself - you’ll still have big tax liability.
      Jan 20
    • Microsoft xaml
      Disclaimer: this is just some back of envelope calculation.

      Say your spouse income is 400k and yours 100K.

      Basically, you pay 8k social security tax, you put 18k into 401k (tax deferred), and the rest of the 74k, you pay 35% federal tax ~ 26k. Pretty sure Microsoft already withhold some money for the federal tax from your salary — say 10k (very rough guess). Put all these number together, even if you don’t work you husband would still owe IRS about 34k tax. And you are bringing home roughly 50k after tax money this year, plus 18k 401k money toward your retirement (Microsoft would also put 9k extra for you), all in all 77k — still sounds like minimum wage?
      Jan 20
    • Microsoft Svcuuhds
      OP
      You are right, it’s still better than min wage, 401k makes things better. Still I bring like only 50k cash home... Again, even less if I count commute and other work-related stuff; and we hired cleaning service as we both work, and we eat out a lot as we don’t have time to cook etc etc... so there are expenses that we do have because we both work... anyway, that’s a different topic :-)
      Jan 20
    • Microsoft xaml
      Understand :)
      Jan 21
    • Microsoft ImAwesome
      Sounds like you should quit and just save money
      Jan 21
  • Tableau User5231
    Most likely you made a bundle on stock vesting. Whenever your stock vests, the fair market value is computed and included as part of your compensation on your W2 - since it is of course income. However, they usually only sell enough to cover 25% tax rate, which is the minimum required by law. Since you are clearly a high earner, you owe at a higher tax rate than 25%, and you owe the difference. You should be estimating taxes and paying quarterly to avoid this. Solution - sell some of the stock that vested to cover the actual taxes.
    Jan 20 7
    • Microsoft BarFoo
      The vesting shares should have taxes withheld (by way of only giving you some of the shares).
      Jan 20
    • Google / Eng
      prodaccess

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      I believe this is due to misreporting of the stock price at vesting.
      Jan 20
    • Microsoft BarFoo
      Did you sell any of that vested stock? Remember that any stock you received should be counted in the income part of your W2. So you’ve already paid the tax on it. You don’t have to put it in as another income line item. If you sold, the gains are based on when you received the stock. It does not have a cost basis of 0...
      Jan 20
    • Microsoft Svcuuhds
      OP
      We sold some, I guess we need to recheck what we have put there again, thanks.
      Jan 21
    • Microsoft BarFoo
      Yeah, you probably put the cost basis as $0. You need to make sure you figure out what the lot was bought at so you can properly account.
      Jan 21
  • Google / Eng
    prodaccess

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    prodaccessmore
    Be sure your stock vesting/selling events are being correctly reported.

    This happened to me once and the reason was because the form from Morgan Stanley was misreporting the stock values at 0. In this case, the entire stock value was being reported as profit and I would have to pay taxes on it.
    Jan 20 0
  • Tableau qHrm43
    No kidding. Hire a CPA
    Jan 20 0
  • Microsoft teaparty
    That’s pretty normal for higher income. Were you selling any vested msft stock this year? Also if you had a raise this year, it could also account for this. Basically look at your total w2 earnings and total tax (including the 50k). Is the effective tax rate somewhere above 30%? If so, it’s expected and no CPA can do much better given your super simple scenario.

    As someone above said, look at the 50k as a interest free loan from Uncle Sam. You could have short term invested it and turned it into more money. You gotta get into real estate and other ventures with all that idle cache dude.
    Jan 20 4
    • Microsoft Svcuuhds
      OP
      I guess we need some financial education about investments... we are not savvy and basically just have savings accounts.
      Jan 21
    • Microsoft xaml
      To start with:
      1, max out 401K
      2, max out ESPP (for Microsoft)
      3, max out HSA
      4, backdoor ROTH IRA
      5, mega backdoor ROTH IRA

      If you have questions about any of the thing I mentioned, look for the “investment club” OneNote via http://msw
      Jan 21
    • Microsoft Svcuuhds
      OP
      Thanks!! I personally did 1-3, but know nothing about 4-5...
      Jan 21
    • Microsoft ramare
      4-5 don't help with tax breaks today but with tax free capital gains after 59.5 age.
      Jan 21
  • Facebook public2
    You got vested stock, this is normal. If you are getting rsus you should be negative withholding by a lot or paying quarterly estimates. Time to learn taxes :)
    Jan 20 4
    • Microsoft Svcuuhds
      OP
      We didn’t know that :-(
      Jan 20
    • Facebook public2
      Now you do, won't be a big deal you get a 1 year pass. Pay the taxes, adjust witholding or pay quarterly.
      Jan 20
    • Amazon / Eng
      Please don't take this advice and pay 50k. My wife and I make around 500k a year. I claim like 5 allowances,.she claims 0. I vest around 200k of stock a year. Owe around 8k a year.
      Jan 21
    • Facebook public2
      That's great but it means that you witheld the correct amount, own a home, and potentially have other deductions such as kids or a business :)
      Jan 21
  • Facebook / Eng
    onlysmellz

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    It shouldn't come as a surprise. Probably you got RSUs and the 50k is the difference between the mandatory 22% withholding and your actual tax bracket.

    You may have to pay penalties as well on top of the 50k depending on your tax situation.
    Jan 20 4
    • Microsoft Svcuuhds
      OP
      Shit :-( But how to avoid this penalty? Pay quarterly?
      Jan 20
    • Facebook / Eng
      onlysmellz

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      What I did is that I calculated the above difference, divided it by the number of paychecks (per year) and set (i.e. told payroll team) that amount as additional amount to be withheld from my paychecks.
      Jan 20
    • Facebook public2
      If this is your first year of poor planning you won't get hit with the underpayment penalty but next year you will need to pay at least 110% of this year's lilability.
      Jan 20
    • Facebook / Eng
      onlysmellz

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      It's easy to confirm this. Ask payroll team how much % they withhold for vested RSUs. That should clarify the whole thing.
      Jan 21
  • Microsoft IMRE74
    Hire a damn CPA
    Jan 20 0
  • Microsoft xaml
    0 allowance on W4 doesn’t withhold enough tax if your combined income is 400K+. Spouse and I had to elect to withhold extra tax from paycheck every month.

    How much federal tax you guys withhold this year?

    Hiring a CPA is not a bad idea, but if you don’t have complicated investment income, turbo tax should be sufficient. Check your effective tax rate, and if that’s around 30%, then the tax can’t be too much off.

    Regarding penalty, you will have to pay penalty only if the tax you withhold this year is smaller than MIN(previous tax, 90% current year tax)
    Jan 20 5
    • Google snkprnt1
      The last part msft said is important. Since your income likely grew, you may not be paying a penalty. Hire a CPA, don't panic. I had similar situation last year, but since i paid more taxes then previous year, I was fine.

      I did pay 20k in taxes additionally, but that was fine. I owed them.

      Is your worry penalty or that you don't have money to pay?

      Former will likely not happen to you, for later, you have to start saving now so you can avoid taking loan to pay taxes.
      Jan 20
    • Microsoft Svcuuhds
      OP
      Luckily we have savings to pay the difference, but we expected to put it as part of downpayment for the house :-/
      Jan 20
    • Microsoft xaml
      I wonder what value does a CPA bring for you?

      I am hesitating to hire one this year.

      Just don’t know what a CPA can do for folks like me — mainly W2 income with a bit RSU related income
      Jan 20
    • Google snkprnt1
      I always do myself and use CPA to double check. It's like an insurance - it's probably wasteful, but worth it for peace of mind.
      Jan 20
    • Microsoft Svcuuhds
      OP
      I’m afraid we have put info about stocks wrong, maybe CPA can recheck :-/
      Jan 20
  • Microsoft askj123
    Not sure how cpa would help in such situation. There is no complicated magic. It's simple maths folks.
    Jan 21 0
  • Workday / Eng efficient
    Don’t know the details but I suspect you got double taxed somewhere. If you can’t figure it out try ask or workmate or an accountant
    Jan 20 0
  • Amazon / Eng
    Dont think it's normal. And I think people here are giving you bad advice. Your vested RSU should be automatically taxed at a high tax bracket rate at the time of the vests. You would only owe additional capital gain taxes if you sold your rsus after the vest. So 50k? Sounds irrational. My guess? Take a look at your w2s. You should see the tax paid on the vested stock. Then take a look at your RSU 1099. Make sure you aren't claiming additional income for those stocks. You should only be paying capital gains on the rsu assuming you sold after your vest. If this is sounding too deep get an accountant.
    Jan 21 10
    • Facebook public2
      "federal income tax at the flat supplemental wage rate, unless your company uses your W-4 rate" most companies use the flat supplemental eg 25%
      Jan 21
    • Microsoft teaparty
      Microsoft uses the W-4 rate
      Jan 21
    • Facebook public2
      Good to know, they didn't when I worked there.
      Jan 21
    • Google / Eng
      prodaccess

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      prodaccessmore
      Trump reduced the supplemental rate from 25 to 22%
      Jan 21
    • Facebook public2
      Apologies, I did not know that. That's even worse, he raised the tax rates on blue states and lowered supplemental. Too funny.
      Jan 21
  • Google homophilia
    It might be the new itemized deduction restrictions.

    I suddenly owed 14K this year to the feds. I looked into why, and it's because of the new state tax cap of $10,000. This means that when you choose itemized deduction (which all wealthy people who pay a lot of state tax should do), last year there was no cap and you could deduct ALL state and local taxes from your federal income, but starting this year you can only deduct $10,000 of that.

    For me (TC 305k last year), that translated into having to pay $14,000 taxes to the feds, much higher than the $4000 I owed them last year.
    Jan 23 2
    • Microsoft Svcuuhds
      OP
      How do you track expenses to file itemized deduction? I started one year but it was a pain to collect all the receipts, can you please suggest how do you do that? Appreciate the answer a lot.
      Jan 23
    • Google homophilia
      historically the only things I itemized were donations to Goodwill and I just kept records of those on Google docs whenever I did them. but now there's no more reason to do itemized unless you donate more than $2000 each year.
      Jan 24
  • Apple / Eng MojaveX
    Use a CPA. Turbo Tax and H&R Block are for people who work at McDonald’s.
    Jan 21 1
    • Google / Eng sgf65v
      Have you compared the CPA to TurboTax? What did they do differently?
      Jan 21
  • Amazon Fetch
    You are likely stuck this year. We make north of 400K and even with planning we have owed about $15K every year due to stock vesting at much higher amounts than we even planned for. The very first year was painful before we started planning, so you may owe the 50K. I wouldn’t use TurboTax, talk to a CPA as they’ll be able to address your specific situation. TurboTax is built for the average earners, when you start making the kind of money you indicate you need a professional.
    Jan 20 1
    • Microsoft xaml
      Does the CPA help you save tax or report tax more precisely?
      Jan 20
  • LinkedIn foody
    Fidelity has already withhold 25% of your vested RSU, but the W2 does not include it.
    Jan 20 1
    • Microsoft xaml
      Definitely not the case for Microsoft!

      Not sure about other companies
      Jan 20
  • Microsoft M5
    It’s so hard to be the 1%.
    Jan 21 0
  • Intel / Eng
    LaLa🥦🖕

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    You both must be high income deducting as single during the year
    Jan 21 0