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2019 Income: Old/New Job Salary, Old Job Severance. Have Questions and Need Advice

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    2019 Income: Old/New Job Salary, Old Job Severance. Have Questions and Need Advice


    Hi everyone.
    Here is the current income and expense situation:

    For 2019, the income is the sum of:
    Old job income
    Old Job severance
    new Job income

    The new job income is over 10% of the old job income.

    Mortgage increased by approximately $100 per month since original filing
    Water bill calculations demonstrate $50 per month increase since original filing (we have a couple years worth of summer watering bills now)

    HSA Contributions:
    Increasing this year, to max out the $7000 annual IRS limit
    Previous HSA Contributions were much less
    Medical and Dental premiums are much higher at new job, vs. old job. The increased HSA contributions are intended to mitigate these significant increases.
    JustBroke referenced a specific HSA-related paragraph in the bankruptcy code in a related conversation.
    I copied that into our notes document for reference. Can't remember the exact paragraph at this time

    Medical and dental coverage costs are much more expensive with the new job

    Contributing 4% to 401K this year (I am 'getting older' so to speak); the company matches contributions up to this amount.

    There is an overlap of 2 months of new job pay and old job severance

    In a spreadsheet, I collected:

    Old Job Gross
    Old Job Federal Taxable Gross (this is gross, minus pre tax deductions). This is extrapolated out to the end of the severance period - end of April 2019. I am writing this post March 11 2019
    Old Job Net Pay (not needed for tax calculations)

    New Job Gross

    New Job Federal Taxable Gross (Gross minus pre tax deductions). This is extrapolated to the end of year 2019. This includes deductions for HSA and 401K contributions that start in the near future
    new Job net pay (not needed for tax calculations)

    Between March and April I will receive severance payments from the old job, and salary from the new job. The severance during this time (also possibly known as 'extra money') is: [ $15000+ Federal Taxable Gross ] / [ $10000+ Net Take home pay ]. This is the money we are currently especially concerned about.

    Based on predicted tax calculations:
    Even though we are maxing out the HSA contributions, and contributing 4% of new job salary into the 401K, we will have a tax bill of approximately $900 at the end of 2019. I will revise this estimate as the HSA and 401K contributions begin. At that time I will see the true tax deductions from those paychecks. At this time it's just an estimate based on current pay stubs. If we do not contribute to the 401K, the tax bill will be higher. Same applies to HSA contributions.

    To avoid a tax bill this large at the end of tax year 2019, I can do one or both, of two things:
    * make additional, equal tax payments during 2019 via payroll deductions
    * lower the allowance count, to increase tax withholding from each paycheck

    Note:
    With the HSA and 401K contributions, the net pay from the new job will be a bit lower than the old job net pay.
    If we do not contribute these funds to the HSA and 401K, the 2019 tax bill will be considerably higher

    Questions and Concerns:

    Would the trustee want a lump sum payment, based on the accumulating severance and new income?

    Will the trustee demand an increased monthly payment, even though we will have a tax bill at the end of 2019? Note - I need to run the tax calculations based solely on the new job income to get a more precise tax estimate, but: a rough estimate is, the 2019 gross income will be about $10K higher than future years. So in 2020, if I have this one job, I suspect the tax bill will be close to $0.00.
    That being said, the new salary alone is over 10% higher than the previous job salary.

    Will we need to redo the I&J forms based on this information?

    Details:
    I have several crowns to be done; at least 2 this year; possibly 3. My wife has a dental implant that must be done, on a molar (chewing tooth). We have requested a narrative from both dental specialists for all these procedures. We have additional medical necessities, for which we will be requesting narratives from the doctors. Our intent is to use a portion of the overlapping severance funds to pay for these procedures. During the severance period, we have an opportunity to use the 'old job' dental insurance benefits for the dental procedures. Same applies to the medical procedures and services.

    The interesting things about this scenario are:

    * I have a considerably increased salary
    * Medical benefits are considerably more costly
    * After 401K and HSA contributions we will still owe taxes due to the extra severance

    Thoughts, feedback, and advice are welcome.

    Thanks everyone

    #2
    I can't guess what your Chapter 13 Trustee would want. It will really depend on two things. First, whether you're in a 100% plan. And second, whether the language in your plan says that you must commit "all" disposable income to the plan.

    Your attorney should be able to address the difference in your plan versus what you have to commit to the plan. Whenever there is a major change (or even a moderate change) in income or circumstances you and your attorney should go back through Schedule I and Schedule J to recalculate your disposable monthly income (DMI). You may also want to look at the Means Test, as a new Means Test is required in "some" but not all districts.

    I just think this is too much for any person, outside someone extremely familiar with your District, Chapter 13 Standing Trustee, and caselaw, could address these issues. I would think, in my personal opinion, that a Trustee would be interested in any income that you don't need after your period of time jobless, and then earning income in the new job. Whether or not your attorney can fashion some sort of agreement with the Trustee to allow you to use the money to have non-cosmetic medical work performed, should be the basis of how you approach this.

    I think you start at the new Schedule I/J and Means Test to see just what this looks like with your new numbers. Income tax issues will need to be factored. Whether or not the Trustee will allow increased 401(k) contributions may be a sticking point.

    As I always like to write, a Chapter 13 is a pay to play system (I stole that line from a Florida Bankruptcy judge). That "pay" has to be balanced and should not be one-sided. So long as the Trustee feels that you're contributing "more" -- since you're earning more -- to the plan, the more likely the. Plan Modification would be acceptable. (You will need to go through the entire Motion to Modify Confirmed Plan at this point.)
    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
    Status: (Auto) Discharged and Closed! 5/10
    Visit My BKForum Blog: justbroke's Blog


    I am not an attorney. Any advice provided is not legal advice.

    Comment


      #3
      <edit: Zombie13 will repost momentarily...>
      Last edited by Barbisi; 03-11-2019, 11:51 PM.

      Comment


        #4
        Thank you justbroke.
        We are not in a 100% plan.
        The plan has a section that shows this:

        III. PROPERTIES AND FUTURE EARNINGS SUBJECT TO THE SUPERVISION AND CONTROL OF THE TRUSTEE
        A. The debtor submits to the supervision and control of the Trustee all or such portion of the debtor's earnings or other future income as is necessary for the execution of the Plan, including:
        1. Future earnings of $$$ per month which shall be paid for approximately 60 months, ... etc.

        I think that is what you may be referring to.

        We well expect the trustee will intend to raise the payment. Beforehand, we need to have an intimate understanding of our updated financial position. We need to present that to the attorney and trustee, effectively 'tell the story'. Hence the I&J forms.

        Regarding the dental issues: on one hand, there is the financial aspect. The trustee has a say in that. On the other hand, is the dental/health aspect. The trustee has no say in that; we do. I reason, I do not need to seek permission from the trustee for dental/health maintenance. We have an opportunity, budget-wise, to get this dental work done now, while we have the Delta dental insurance. They will cover the implant for Barbisi, and of course, my 2 crowns (fun), at 60%. We do not know what Cigna will cover, though I will inquire. The BK plan is supposed to 'teach budgeting'. We already know how to budget, hence we are taking advantage of the opportunity to use the Delta dental insurance to get the work done now, with a portion of the 'extra' severance funds. The trustee may not approve, but then again, the trustee probably does not have holes in his/their mouth, old cavities that require crowns, etc. I reason, if the trustee wants those extra funds too, goodie. They can average it out over the remaining life of the bankruptcy. Not meaning to rant. If we wait for the trustee to make a decision on this and the other matters, our opportunity to take advantage of the Delta dental insurance that covers these expenses at 60% may evaporate. Our deadline is April 29 when the severance ends. There is no guarantee we can book another appointment to get this work done between: when the trustee grants his blessing, and April 29. Therefore, my gut says, do it now. Deal with the trustee after. My/our health is a high priority. Anyway... sorry for the rant.... I didn't really want to post this tonight but needed to anyway. At least we have a good idea regarding the tax situation.

        Yep this is pretty complicated but once we have more clearly defined knowledge of the taxes, deductions (HSA, 401K) etc we can re-evaluate, notify the attorney, and move forward with this process. I don't like to estimate (although the attorney said to do so last time) because it can get us into trouble. If we land a person on Mars, we don't **Estimate**. We gotta be right the first time; we only have one shot. That's how I look at this.

        Thanks

        Comment


          #5
          And... this. Is why I drink.

          Comment


            #6
            We reason, we need to notify the attorney before we have these dental procedures done. That way, we avoid the conversation involving, "why didnt you tell me sooner". Plus, I will tell the attorney, to demonstrate good faith, I will opt out of the 401k plan. This provides funds to pay the trustee and plan. In addition, I must point out that this raises our 2019 tax bill to about $1600. So we will make payroll deductions toward the tax bill. Yes its complicated but I need to distill all this information into bullet points.
            Thank you justbroke for your input.

            Comment


              #7
              I think you're doing the right things and making sure you have run all the numbers yourself. As I know you have already looked into the tax implication, just make sure that you have accounted for that and are able to articular the tax impact of changing the 401(k) contributions.

              Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
              Status: (Auto) Discharged and Closed! 5/10
              Visit My BKForum Blog: justbroke's Blog


              I am not an attorney. Any advice provided is not legal advice.

              Comment


                #8
                Will do.
                I assembled the information in a spreadsheet, since the new job paychecks are fluctuating due to the medical and HSA contributions. By paycheck 3 they should settle.
                I will use TurboTax to verify my calculations. I find it difficult to believe the tax bill will be that high. But with 2 months of 'double pay' I suppose it's possible, even though the income from severance and the new job are both already being taxed at appropriate levels (assuming each of those, was the only income). We downloaded the I & J forms so we can work on those now.
                Yes, articulating the facts in a clear and concise manner is the right course of action.

                Comment


                  #9
                  So, is the *nationwide* average turnaround time for this process known? Is it a couple days, weeks, months?

                  Comment


                    #10
                    Originally posted by Zombie13 View Post
                    So, is the *nationwide* average turnaround time for this process known? Is it a couple days, weeks, months?
                    I don't understand what you are asking. Are you asking about the Motion to Modify Confirmed Plan? If so, it should take a minimum of 30 days as the motion must be served on all creditors, so that they can object. This minimum time is usually still the same even if the Trustee consents to the modifications as-is.

                    Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                    Status: (Auto) Discharged and Closed! 5/10
                    Visit My BKForum Blog: justbroke's Blog


                    I am not an attorney. Any advice provided is not legal advice.

                    Comment


                      #11
                      Apologies. Yes, The Motion to Modify Confirmed Plan. I made a mental note to refer to the terminology that you mentioned earlier. A sticky note probably would have been a better reminder. .... ... As long as I didn't lose it.
                      Last edited by Zombie13; 03-12-2019, 10:24 PM.

                      Comment


                        #12
                        Two options I can execute with the severance that overlaps with the new-job payroll:

                        1. Set the allowances of the severance paychecks to 0. Since this is 'surplus income' according to the bankruptcy process, I see no reason, legal or otherwise, why we cannot do this. So, Allowances are going to zero. This will help pay for the taxes during the 'pay overlap' period.

                        2. Make a lump sum payment to the 2019 taxes using the surplus severance pay. I am not sure if the trustee would object to this, but I really do not see why they would object to it. As long as the taxes are paid and the creditors get their increased money, why would it matter how I pay the surplus taxes? I suppose the trustee might think I am trying to 'pull something' by overpaying the taxes, in order to get a large refund, and protect the money. Which is not the case. I will include the calculations in the information package to demonstrate I am paying only what I expect I will owe.

                        What do you think about these options? As a note, I will also lower the new-pay allowances, if necessary. Of course this results in lower take home pay.

                        Question: what does the trustee base the payment increase on: gross pay, or net (take home, after taxes, after deductions) pay? Or a combination of both?

                        Thanks

                        Comment


                          #13
                          Ok. In the hopes this will assist others:
                          I completed the I and J forms. I may need to make adjustments as we talk with the attorney in the near future.

                          I typed up 10 possible scenarios with new payment calculations. The variables are: severance, HSA, and 401K contributions.

                          1. No change
                          2. trustee wants all overlapping severance in a lump sum
                          3. trustee wants all overlapping severance, distributed over the remaining 3 years of the bk lifetime
                          4. trustee wants the voluntary 401k contributions over remaining 3 years
                          5
                          . trustee wants HSA delta over remaining 3 years (between old salary and new salary)


                          6. trustee wants the overlapping severance and 401k over remaining 3 years
                          7. trustee wants HSA delta and 401K over remaining 3 years
                          8. trustee wants HSA delta and severance over remaining 3 years
                          9. trustee wants HSA delta, severance, and 401K over remaining 3 years
                          10. If trustee expects us to pay 2019 taxes as lump sum when we file in 2020, then additional $200/month for 12 months are applied to payments in scenarios 1-9.

                          As a note: TurboTax is your friend. When I had mentioned taxes earlier in this thread, I had forgotten about the state tax. So yeah, there is that. I have incorporated the state income taxes into the tax estimates for 2019.

                          That pretty much covers it.

                          Next steps are to notify the attorney, submit the I and J forms and other relevant info, make adjustments to I and J as appropriate per discussion. Then wait and see what trustee says. Then make adjustments as appropriate. Then we're done. Make the payments, live, move on.

                          Comment


                            #14
                            I feel I have to interject here :normally getting severance money while unemployed and then having those checks continue for two extra months after the new job pay begins would only be a concern for tax reasons. It would never be a crime to use part of the extra funds to pay for long delayed dental care (2 crowns and a molar implant) while insurance will stay pay for a good chunk of it. It would be considered the right thing to do. We however are not in control of our own finances (which is how Chapter 13 work and we understand that!) and the creditors actually come before medical necessity and the trustee decides what medical care if any we are permitted to have based on IRS standards which only allow a maximum of $110 per month- not enough to cover an implant (around $3300 total if I can use the Delta insurance ($1400 on the actual implant portion procedure ) and about $1900 for the crown if CIGNA won't cover any of it) and the 2 crowns (about $1500 if we are allowed to use Delta) The only way we can pay for these is with the extra severance- we can't save up almost $5000 from the IRS allowances - could you? That is why although every one may see it as somehow underhanded we are trying to get an partial exception for the extra severance we can't find any other funds to pay for this needed work! My empty socket hurts me when I eat and causes me to have to shift food to the left side. My husband's two fillings are not yet infected but will require root canals when they are and then if that isn't done , he will have to lose both teeth and later need implants as well!
                            I don't believe these are just cosmetic. The $300 the trustee allowed us in our initial filing , goes for chiropractic care for 2 people ($60 per person at least 4-5 times total a month!) I need a yearly ultra sound exam for my growing fibroids and BC pills to try to manage them and we are both overdo for a yearly checkup! So as you can see this is going to be very difficult with the new flabbergasting insurance rates (my husband says a 300% increase a year! )
                            Yes, this is a rant but I am feeling desperate so please forgive me!
                            Last edited by Barbisi; 03-15-2019, 03:26 PM.

                            Comment

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