Standard deduction offset against 401k distribution and daycaring income?

Forum|Forum|2 years ago
December 17, 2023
2 replies
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Hi All,

I will be 72 in 2024 and have been living off my SSI and savings since I was 65. For 2023, I only received about 1200 per month for SSI before Medicare and my son will start to claim $5000 DCA under my name for 2023. Considering all these, can I withdraw 7000 from my 401k and offset the income tax from 401k to my standard deduction and net to zero taxes? When I put the 5000 on my tax, should it be under self-employed or other income?

Thank you.

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Best answer by Hal_Al

Q. I can withdraw 12500 from my 401k in total, and not pay income tax; right?

A. No. You can withdraw $8850. The $5000 net self employment income will be taxable. So, there is only $8850 (13,850 -5000 = 8850) of standard deduction left for the 401k distribution.

DoninGA

Employee

If you are receiving income for providing child care in your home then you report that income and expenses on a Schedule C for self-employment. If you have net income of $400 or more from self-employment then you will have to pay Self-Employment taxes, which are a separate tax and not included in federal income taxes.

SSI is Supplemental Security Income and is not from the Social Security Administration. It is designed to help aged, blind, and disabled people, who have little or no income; and. It provides cash to meet basic needs for food, clothing, and shelter. SSI is not reported on a tax return.

Social Security Retirement/Disability/Survivors benefits are reported on a form SSA-1099 and the benefits received are to be entered on a federal tax return. The benefits may be taxable depending on the amount of other income you have entered on your tax return.

Up to 85% of Social Security Retirement/Disability/Survivors benefits becomes taxable when all your other income plus 1/2 your social security reaches:

Married Filing Jointly - $32,000
Single or Head of Household - $25,000
Married Filing Separately - 0

Standard deductions for 2023

Single - $13,850 add $1,850 if age 65 or older
Married Filing Separately - $13,850 add $1,500 if age 65 or older
Married Filing Jointly - $27,700 add $1,500 for each spouse age 65 or older
Head of Household - $20,800 add $1,850 if age 65 or older

SeniorTTEVAuthor

Hi,

In this case, will I get a tax refund for taxes I paid for the 7000 401k withdrawal?

Thanks

Hal_Al

Employee

Q. Can I withdraw 7000 from my 401k and offset the income tax from 401k to my standard deduction and net to zero INCOME tax?

A. Yes. But, you will pay self employment tax (social security and Medicare [FICA] tax) on the net self employment income.

Q. When I put the 5000 on my tax, should it be under self-employed or other income?

A. Self Employment, if you baby sit in your own home.

If you baby sit in the parent's home, you could be classified as a "household employee". Grandparents working as household employees are exempt form social security and Medicare [FICA] tax (there are exceptions).

Q. In this case, will I get a tax refund for taxes I paid for the 7000 401k withdrawal?

A. Yes. Instead, you should ask 401k plan administrator not to withhold any income tax, unless you want to cover the self employment tax , in advance.