Did I do this right? Trying to avoid big tax near year because of my bonus

[linr05]

TOTAL INCOME

Taxable Income (Base Pay)

$3135.60 x 12 = $37627.20

Standard Tax Deduction: $14,600

$37627.20 - $14600 = $23027.2

Student Loan Repayment Bonus

1/3 of $37698.66 (SL) = $12,566.22

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TOTAL TAX CALCULATIONS

Taxable Income

10% $0-$11,600 $11,600.00 = $1160.00=

12% $11,600-$47,150 $11,427.20 = $1371.26

Expected ‘24 Federal Income Tax - $2531.26

Student Loan Repayment Bonus

22% $12,566.22 = $2764.57

Total Expected Tax Amount: $2531.26+$2764.57=$5295.83

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TAX PAID

Federal Taxes Withholding - $210.91/Mo or $2530.92/Yr

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TAX OWED

Total Expected Tax Amount - Federal Taxes Withholding = Tax Owed

$5295.83 - $2530.92 = $2764.91

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AFTER CONTRIBUTING $23,000 TO INDIVIDUAL TSP

New Taxable Income: $27.20

New Federal Income Tax: $2.72

New Total Expected Tax Amount: $2767.29

New Tax Paid: $2530.92 (same)

New Tax Owed: $236.37

 

[luckycharmwa]

@linr05 I know you’re trying to avoid having to pay more into federal taxes or owing at the end of the year but it’s highly suggested to invest in the Roth TSP rather than Traditional. You’re at such a low tax bracket that it’s better to pay the taxes now rather than later. I’d change your W4 to have an extra $200 taken out every month and contribute what you can into a Roth program.

 

[shineannette]

@luckycharmwa I echo this. Current Low tax bracket, historically low tax rates, crippling federal debt. Eventually Congress will raise tax rates, take effect while you can for tax free forever money.

Plus with OPs taxable income level they should get a $200 tax credit for retirement savings.

 

[mariahhgrim]

@luckycharmwa

You’re at such a low tax bracket that it’s better to pay the taxes now rather than later.

What tax bracket would it make sense to switch to traditional?

 

[shineannette]

@mariahhgrim For military members it’s 24% or greater and I lean more heavily to the or greater mindset.

An exception would be if they will retire at twenty and not seek another career. Then retirement taxable income will most likely be less than while working for the military.

 

[mariahhgrim]

@shineannette How much income/how far into that tax bracket are you thinking?

 

[beforetheseven]

@luckycharmwa Like everyone else here “if I can piggyback off this” ROTH ROTH ROTH!!! Read the book “The Power of Zero” and you will never want a dime in traditional Ira ever again except whatever your match is if you’re on the Blended system bc that’s free money. The book is a quick 140 pages and worth the day 3 hour read!

 

[kitty346]

@linr05 No. That’s not it. The bonus is taxable just like any other income and it looks like you’ll over withhold.

Taxable Income

Base Pay - $37627

Bonus - $12566

Total - $50193

Taxes

Standard Deduction first $14600 -$0

10% next $11600 - $1160

12% next $23993 - $2879

Total tax liability - $4039

*Withholding *

From base Pay - $2530

From bonus - $2764

Total - $5294

Refund - $1255

—————-
For the traditional TSP scenario,

Taxable Income - $27193

Taxes

0% Standard Deduction $14600 - $0

10% next $11600 - $1160

12% next $993 - $116

Total tax liability - $1276

Withholding

From base Pay (assuming all TSP contributions come from base Pay) - $0

Bonus - $2764

Total - $2764

Refund - $1488

 

[linr05]

@kitty346 I should’ve specified this bonus will not have tax withheld.

 

[kitty346]

@linr05 Are you getting it for months serviced in a Combat zone? If so, it’s not taxable at all. Otherwise it is taxable and subject to withholding.

 

[linr05]

@kitty346 No.