I owe $36,000 in income tax for a year during which I earned NO income

This is a very sad situation indeed, and one that I really do sympathize with. Stories like this one (the way governments can treat their people, and get away with it) really do make me angry.

I sincerely hope you are able to somehow resolve this issue

I was severely disabled for most of 2010 and earned absolutely no income. I collected approximately $35,000 through an employer-sponsored private disability plan, which was considered taxable income

Do you owe $35k or is the $35k taxable? I'm going to assume you mean the $35k was taxable, because if you owed that much for one year of income tax you are doing pretty well. I would consult a CPA, and not one that works for H&R Block.

Originally posted by timidgal
I collected approximately $35,000 through an employer-sponsored private disability plan, which was considered taxable income

Originally posted by timidgalA person who worked hard, earned a decent income and paid more than her fair share of taxes for more than 20 years, all the while never turning down a chance to help other people in need, finds herself in a situation where she owes Uncle Sam $36,000 because she was too sick to work

We can all agree that we're overtaxed, but I think in this case you've made a rather large mistake because it's literally impossible for you to owe 36,000.00 in taxes on a 35,000.00 declared income. The absolute worst case scenario is if you're single, that would place you in the 15% tax bracket which works out to 5250 in taxes. But it's likely that you won't owe anything close to that after your medical write-offs are incorporated. Don't try to figure this out yourself, go to a tax consultant. People make these sorts of mistakes all the time because they think their taxes are "easy" and they can do it themselves. There are no such things as "easy" tax returns, they don't exist.

reply to post by timidgal

I don't know if anyone brought this yet or if it even applies to you ( I hope so)...

Disability income taxable?

reply to post by timidgal

I don't know if anyone brought this yet or if it even applies to you ( I hope so)...

Disability income taxable?

I also did a general google search:

taxable disability income

So you're saying you never bought enough disability insurance to cover this event?

and now it's someone elses fault?

Originally posted by BABYBULL24
You may want to check into applying for Social Security Disability - I think if you were out of work for over a year you can apply for benefits retroactively - for yourself & your dependents. Would consult an attorney who specializes in SS Disability only!

.

FYI - check your insurance policy - SS Disability may be an offset to your insurance policy. Which means if you are awarded SS benefits the insurance company may come back after the money they paid to you. [

Good luck

Also - SS attorney's work on a contingency basis so you won't have to shell out any money if they take your case.


Ah... You obviously know of their tricks and yes, I would have had to pay them everything from SSDI, as would have my minor child and ex-spouse (who would have been entitled to a benefit as well - talk about a real waste of our social services).

As for contingency arrangements, I'll definitely go back to him with this question but I'm wondering if perhaps this wasn't offered because he thinks our outcome might not be as successful as I am hoping. Any additional thoughts?

reply to post by timidgal


Something isn't right here. With $35k in income, a $36,000 tax bill would mean you would have taken out nearly $120,000 from the 401K. If you took say, half that amount then your taxes are being calculated incorrectly. College Expenses and financial hardships qualify for exemptions from the 10% IRS penalty for early withdrawal, thus you should only be paying regular income tax on those amounts.

You need to see a tax professional. You also need to have at least 20% withheld for taxes on any further distributions so this doesn't occur again. A big, big mistake to give away your retirement for your kid's school especially if you are disabled.

.

reply to post by xyankee

No question about it and it took me from November 2009 until May 2010 to get my disability payments approved (insurance company kept "losing things" and constantly wanted redundant info - they even had me under surveillance for a period of time and spoke with my neighbors). If I wasn't a royal pain who knew enough about the contract language to be dangerous, it never would have been paid. With that said, their harassment made me a paranoid mess and I stupidly chose to stop accepting benefits earlier than I could have.

Trying to keep your emotional health above water when your fighting an illness is hard enough, but with this added anxiety, you're right, I too am surprised more people don't go over the deep end.

Originally posted by gaurdian2012
correct me if I am wrong but if you refuse to pay (because technically Tax Is illegal) You run the risk of going to jail.............................something is sooo wrong with the system

The US Federal Government has the right to collect income tax. It's the 16 amendment, which make it legal.

reply to post by BiggerPicture

Yes they partially are but they have to exceed 7.5% of your adjusted gross income. With the combination of the DI payments and retirement distribution, I didn't reach the threshold.

reply to post by grey580

Thanks for the well wishes, grey580. I'll keep everyone apprised.

Originally posted by Domo1

I was severely disabled for most of 2010 and earned absolutely no income. I collected approximately $35,000 through an employer-sponsored private disability plan, which was considered taxable income

Do you owe $35k or is the $35k taxable? I'm going to assume you mean the $35k was taxable, because if you owed that much for one year of income tax you are doing pretty well. I would consult a CPA, and not one that works for H&R Block.

Yes I have the same question, is the $36,000 the 10% fee from your 401K ?

Originally posted by Destinyone

Originally posted by timidgal
reply to post by Destinyone

 

Des,

Your genuine concern and desire that if possible, you wish you could help someone you dont know comes through loud and clear and I thank you for making me feel less foolish for being a good and decent person. I honestly hesitated in writing this thread for fear of sounding like a whiner; knowing that people understand and I'm not a selfish person for being so resentful is extremely heartening and something I needed to hear.

With much gratitude to everyone who responded,
Timidgal

Oh Timid...don't feel foolish. It's the position our own government has put you in, that is foolish. How they have set up such a corrupt and broken system to support themselves, and so many who are not deserving of help.

I wish the best for you. I hope and pray you find a sharp, quick Attorney to put the screws to them, for you.

Keep us posted if you feel like it. I can't help but believe there are many lurkers reading your thread, saying to themselves....damn...I could have written that. You are probably helping a lot of folks in a similar situation, but don't post about it.

You are a good person Timid....

Des

You and everyone else restore my faith in good, honest and decent people - - and yes, I'll definitely keep everyone posted!!

Originally posted by Destinyone

Originally posted by timidgal
reply to post by Destinyone

 

Des,

Your genuine concern and desire that if possible, you wish you could help someone you dont know comes through loud and clear and I thank you for making me feel less foolish for being a good and decent person. I honestly hesitated in writing this thread for fear of sounding like a whiner; knowing that people understand and I'm not a selfish person for being so resentful is extremely heartening and something I needed to hear.

With much gratitude to everyone who responded,
Timidgal

Oh Timid...don't feel foolish. It's the position our own government has put you in, that is foolish. How they have set up such a corrupt and broken system to support themselves, and so many who are not deserving of help.

I wish the best for you. I hope and pray you find a sharp, quick Attorney to put the screws to them, for you.

Keep us posted if you feel like it. I can't help but believe there are many lurkers reading your thread, saying to themselves....damn...I could have written that. You are probably helping a lot of folks in a similar situation, but don't post about it.

You are a good person Timid....

Des

You and everyone else restore my faith in good, honest and decent people - - and yes, I'll definitely keep everyone posted!!

You will be tax. If you receive more then a certain amount of income. But they shouldn't tax any already tax income. But will tax income that you earn the following tax year, including income you gain in interest.

reply to post by biggmoneyme

LOL - it's amazing that you and everyone else have been able to encited some levity in me about this as I've been fuming since last week. You're right and I think there was a thread a few months ago about a homeless man who was thrilled when he was arrested and was provided a dry roof and hot meal compliments of the criminal penal system.

Originally posted by sligtlyskeptical
reply to post by timidgal

 

Something isn't right here. With $35k in income, a $36,000 tax bill would mean you would have taken out nearly $120,000 from the 401K. If you took say, half that amount then your taxes are being calculated incorrectly. College Expenses and financial hardships qualify for exemptions from the 10% IRS penalty for early withdrawal, thus you should only be paying regular income tax on those amounts.

You need to see a tax professional. You also need to have at least 20% withheld for taxes on any further distributions so this doesn't occur again. A big, big mistake to give away your retirement for your kid's school especially if you are disabled.

.

reply to post by Tachalka

Again, my genuine thanks for the comments. It's nice to know others find this inconceivable.

reply to post by timidgal


So how much did you take from your 401k? Since you posted that you spent the whole $35,000 in disability on deductible medical expenses that would mean $35,000/ .075 = over $400,000. So obviously you did not spend it all on the expenses you cite.

If you seriously want help you need to come clean. Regardless if you spent the disability on medical, that income alone should have resulted in taxable income of about $15,000 after the standard deduction and 3 personal exemptions. Tax on $15,000 is $1646 for a head of household.

Not sure where you live, buy let's say that state and local taxes are 10% or $3600. Even if for some reason you can't claim the exmption for the early withdrawal. That means another $3600 in IRS penalties. Leaves $28,800 in Federal Tax at a minimum. Under current tax rates this means you withdrew at least $135,000 from the 401k. Pretty expensive college isn't it?

Something tellls me you yanked your entire 401K when you became disabled. a big mistake. if you would have staggered it over a few years things would have worked out better.