Author Topic: Unvestable (is that a word?) income and taxes  (Read 595 times)

caracarn

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Unvestable (is that a word?) income and taxes
« on: January 22, 2020, 01:41:47 PM »
So I left a job last year that has a vesting period based on time at the company and in the 401(k) that is 20% per year for 5 years to be fully vested.  You were unable to join until being employed for a year and only two enrollment periods, January and July.  I started in April, so had to wait 15 months until I could contribute.  I then left the company in March after a bit under 2 years of employment so my vesting in the 401(k) is only 20% for the profit sharing portion.

My dilemma, as I am beginning to work on my taxes is this and what I need help with.  The company made an $18,000 profit sharing contribution about a month after I left into my account, but only 20% of that is vested.  What I am trying to determine is if they included that full $18,000 as taxable income in my W-2 (I believe they did based on the fact that it says I earned $65K from 1/1 to 3/8 when my salary was $180K.  As $65K for less that 3 months work is over $240K in income and higher than my salary, I am almost certain the full $18K was included in my income and I understand that if I was still employed there and could increase my vesting and eventually get the full amount, but I cannot as I am not there anymore.  So my questions are how can I determine if what I assume is accurate as the W-2 does not provide enough detail?  When I file taxes is there a way to negate this since I am being taxed on income I can never truly receive?  I already spoke with the 401(k) holding company and they verified that even though my balance shows the full amount I can only withdraw what is vested and that will remain that was in the future.  So basically I am being taxed on about $14K of income I do not really have and given that I owe a few thousand in taxes now feel this is a big reason why as these amounts are not withheld against so I am taking the full hit of taxes on that $18K. 

For those who may understand the issues here better than I, looking for any advice.  Am I just stuck with that and no real way to be made whole with regards to taxes, or is there some lesser known tax law that only works in these circumstances that I have not found?  I use TurboTax and do my own taxes so no "tax guy" to bounce this off of and I would prefer not to pay someone as I am also worried I may spend hundreds to have someone just tell me "yeah, it sucks but you owe tax on this even though you will never see it".

MDM

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Re: Unvestable (is that a word?) income and taxes
« Reply #1 on: January 22, 2020, 02:26:18 PM »
See the first 14 rows on the 'Calculations' tab of the case study spreadsheet for a picture (of sorts) to go with the following words.

Companies often provide a document similar to a W-2 but with more details.  Your W-2 probably doesn't show your "gross income".  W-2 box Box 5 has "gross income" minus "cafeteria plan" deductions such as medical insurance, FSAs, and HSAs.  W-2 Box 1 has Box 5 minus your 401k contribution.

Does that help you figure out your situation?

caracarn

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Re: Unvestable (is that a word?) income and taxes
« Reply #2 on: January 23, 2020, 10:13:30 AM »
It may, but what I still do not know if that since I can never be fully vested is there a way to not pay taxes on the 80% of the profit sharing that is not really available to me.  That is really my question, as I am 90% certain that it was all reported as income and I have a tax burden for something that is not really income because I can never get to it.  Not sure how I figure out if there is a way to handle this.

MDM

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Re: Unvestable (is that a word?) income and taxes
« Reply #3 on: January 23, 2020, 11:08:06 AM »
I am 90% certain that it was all reported as income
Really need to get to 100% on this (whether it was or was not).

E.g., based on Retirement Plan FAQs Regarding Contributions - Are Retirement Plan Contributions Subject to Withholding for FICA, Medicare or Federal Income Tax? | Internal Revenue Service one might guess you aren't paying any tax on the employer contribution - if your employer did things correctly....
« Last Edit: January 23, 2020, 11:38:29 AM by MDM »

NotJen

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Re: Unvestable (is that a word?) income and taxes
« Reply #4 on: January 23, 2020, 11:20:36 AM »
I am 90% certain that it was all reported as income
Really need to get to 100% on this (whether it was or was not).

E.g., based on Retirement Plan FAQs Regarding Contributions - Are Retirement Plan Contributions Subject to Withholding for FICA, Medicare or Federal Income Tax? | Internal Revenue Service one might guess you aren't paying any tax on the employer contribution - if you employer did things correctly....

Profit sharing that goes into a 401k should not be taxed.  My employer's contributions to my 401k (safe harbor and profit sharing) have never shown up on my W-2.

Do you have your last pay stub?  Can you compare it to your W-2 to see what numbers might have changed?  Sounds like you need to contact your former employer so they can explain things to you (or so you can point out that your W-2 wrong).

caracarn

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Re: Unvestable (is that a word?) income and taxes
« Reply #5 on: January 23, 2020, 12:48:30 PM »
Thanks for the feedback.  No I did not print my last paystub (we were paperless).

Knowing that the feeling is that any of the employer contributions should not be taxed, I will do what MDM indicated and make sure they are not included in some way.  I think I can add up my deposits from that employer in YNAB, divide by a factor for the withholding that was done to see if I get close to what the W-2 says.  As I said the profit sharing as nearly $20K so if I am even within a few thousand when I do that then it is not in there.

Thanks all for helping me think this one through!