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Posted by Steve Pope on January 28, 2009, 8:58 pm
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>I've always wondered about this one.
>Assume the following:
>*You made the contribution to your employer's 401k in 2008.
>*In 2009, your employer refunds a portion of that contribution to you
>(e.g. for top heavy plan reasons).
Bad employer. :-)
>As I recall, the amount refunded will be considered income to you for tax
>year 2008 even though you didn't receive it and had no way of knowing
>about it in 2008.
>Suppose that because of the refund, you failed to pay enough estimated tax
>in 2008 to avoid an underpayment penalty. If it had not been for the
>refund, you would have paid enough.
>How can you be expected to be able to properly calculate your estimated
>tax if you aren't clairvoyant enough to know in advance if or how much of
>your 401k money will be refunded to you?
You could try to fill out form 2210 in such a way that shows
the uneven receipt of income, and therefore reduces the penalty.
To do this, you will need your paycheck stubs dated March 31, May 31,
August 31.
It will also help to make an additional estimated tax payment
as soon as you know about the extra income, rather than waiting
for April 15 (or alternatively, file as early as possible).
Steve
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