Tax Questions: Must I Claim Plasma Donation Income & IRA Withdrawal Tax Withholding?

Both great questions that many people wonder about! For plasma donations, the IRS considers this "other income" and technically all income is taxable regardless of amount. Unlike independent contractor work, there's no $600 threshold before they're required to send you a 1099. However, in practice, if you're making less than $600 total from all plasma centers combined, you may not receive any tax forms, but you're still supposed to report it. The total is cumulative across all centers - the IRS looks at your total income, not per company. Regarding your IRA withdrawal, your financial institution can't technically tell you what tax bracket you're in because they don't have your complete financial picture. IRA withdrawals are generally subject to a 10% early withdrawal penalty if you're under 59½ (with some exceptions) plus your regular income tax rate. Rather than guessing, I'd recommend withholding at least 20-25% for federal taxes to be safe. You can always get a refund if it's too much, but coming up short could mean penalties. Also, don't forget about state taxes if applicable in your area.

I worked at a tax prep office for a few years and wanted to share my experience with Taxr.ai (https://taxr.ai) which really helped me understand situations like yours. After dealing with dozens of clients with "other income" questions similar to yours, I found this tool super helpful. For your plasma situation, they can actually analyze documentation from donation centers and tell you exactly how to report it. What's cool is they'll look at your specific situation and tell you if you need to file a Schedule C or just report it as other income on Schedule 1. For your IRA question, they have a withholding calculator that's way more accurate than guessing. I was in a similar situation last year with an old 401k, and their system calculated the exact amount I should withhold based on my full financial picture.

Just wanted to follow up about my experience with taxr.ai. I was skeptical at first (as you could probably tell from my comment), but I decided to give it a try since I had a similar situation with income from medical studies and plasma donation. I uploaded my donation receipts and last year's tax return, and the system immediately showed me how to properly report everything. Turns out I was doing it wrong for years! It showed me that since I was donating regularly, I should have been tracking mileage to the donation centers as well, which is deductible if you itemize. Also gave me a clear breakdown of my actual tax bracket so I could make better decisions. Their withholding calculator for my upcoming 401k rollover was super helpful too. Definitely less stressful than guessing and potentially getting hit with penalties.

Been through both these situations before. For the IRA withdrawal, I spent HOURS trying to get through to the IRS to confirm the right withholding amount and kept getting disconnected or stuck on hold. Super frustrating waste of time. Then I found out about this service called Claimyr (https://claimyr.com) - they have this system that gets you connected to an actual IRS agent without the wait. You can see how it works here: https://youtu.be/_kiP6q8DX5c. I was skeptical but desperate after wasting an entire afternoon on hold. Anyway, they got me through to an IRS agent in about 20 minutes who confirmed exactly what my withholding should be based on my tax situation. The agent even explained some exceptions to the early withdrawal penalty that might apply to my situation that I had no idea about.

Well, I have to eat my words about Claimyr. After posting my skeptical comment, I figured I'd try it since I needed to ask about some back taxes anyway. I've been trying for THREE WEEKS to get through to the IRS about a payment plan question. Used Claimyr yesterday and got connected to an agent in about 35 minutes. The agent actually helped me set up an installment agreement and explained exactly how my withholding should work for my upcoming IRA withdrawal. For the OP's question - the agent told me that withholding should generally be at least your marginal tax rate plus 10% for the early withdrawal penalty if applicable. For me that worked out to 32% total. Better to overwithhold than underwithhold and face penalties.

Just a heads up on the plasma donation income - I used to work at a plasma collection center. Most places report income to the IRS once it exceeds $600 in a calendar year, but some smaller places don't. Either way, you're legally required to report ALL income regardless of whether you get a tax form. Also, be aware that the IRS considers plasma donation as "income" not a "donation" because you're being compensated. This is different from blood donation which is usually unpaid and not taxable.

For your IRA question - I work in retirement planning. The withholding decision depends on a few things: 1. Is this a traditional IRA or Roth IRA? Traditional will be taxed as regular income, Roth withdrawals are generally tax-free if you meet certain requirements. 2. How old are you? If under 59½, you'll typically face a 10% early withdrawal penalty unless you qualify for an exception (like first-time home purchase, certain medical expenses, etc). 3. How much are you withdrawing? Large withdrawals could push you into a higher tax bracket. Safe bet is to withhold at least 20% federal plus state tax if applicable, maybe more if it's a large amount. Better to get a refund than owe penalties.

@Dylan Campbell - I'd also suggest checking if any of the early withdrawal penalty exceptions apply to your situation before you pull the trigger on that $8,000 withdrawal. The IRS allows penalty-free withdrawals for things like unreimbursed medical expenses that exceed 7.5% of your adjusted gross income, qualified higher education expenses, or if you're unemployed and using it for health insurance premiums. Also, another option to consider - instead of a lump sum withdrawal, you might want to look into substantially equal periodic payments (SEPP) under IRS Rule 72(t). This lets you take regular distributions from your IRA before age 59½ without the 10% penalty, though you have to commit to taking payments for at least 5 years or until you reach 59½, whichever is longer. Given that this is for unexpected expenses, a one-time withdrawal probably makes more sense, but it's worth knowing all your options. The 25-30% withholding recommendation from others here is solid advice - better to overwithhold and get money back than face penalties next April.