Unexpected income - do I need to adjust federal tax withholding and how do I do that?

Forum|Forum|7 years ago
September 29, 2018
1 reply
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Scenario:

I'm in a state with no state income tax. I'm currently making $115,000 and 18% from my monthly paycheck is being withheld for federal tax. Now, my company is getting acquired and I am getting ~$750,000 proceeds from the stock sale, which will be coming in through regular payroll. I'll also be getting $185,000 salary after the merger.

Questions:

Do I not need to worry about change the withholding and just pay whatever more tax I need to, in April 2019? Or do I need to increase withholding now to avoid penalties for when I file in April 2019?

Carl11_2

Employee

Increasing withholding at this time for the additional $750K will not be enough. If you're getting it through regular payroll, then taxes will be (should be) withheld by the employer. Otherwise, I would suggest you send the IRS at least 25% of the additional income as soon as you receive it in 2018, so as to avoid underpayment penalties, and to avoid having to deal with the paperwork to exempt yourself from those penalties since you would be exempt (from the penalties, not the taxes) for such a large one time payment.