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First of all, thanks for the quick reply, and being at least one opinion which agrees with my interpretation. If I understand you correctly, the interpretation is that since the all the stock/money in the account was an employer match, 100% of the distribution from it would be equivalent to a "bonus check", as I had no basis in the stock in the account.


Note that the withholding rate applied seems to be the flat 25% rate plus flat state rate of 2%, which an employer is allowed to
use for bonus distributions, even if your W-4 would require a different rate of withholding. As a result, if your marginal tax rate
is higher than the 25% federal tax rate collected, you may end up owing additional tax on the distribution (i.e., your employer
may have underwithheld). You should look into whether you need to make additional estimated tax payments to avoid
penalties.


Actually, the 27% was just on the federal income tax line, and the state income tax withheld was an additional $256 (~4.2%, appropriate for MI).

...and thanks for the advice for the additional tax implications due to the witholding being undertaxed relative to my marginal tax rate. (Un)fortunately, they had done this from all previous bonus checks in the 3+ years I worked there, so I was well aware of this effect. FWIW, MS Money Tax Center actually does a pretty good job of showing tax implications of mid-year events.

T.J.
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