Question about Not withholding taxes

[pennrj430]

I have a question for anyone who gets a W-2. Does anyone choose to have your company not withhold taxes from your paycheck? I was thinking of doing this in the future. Getting my entire gross check, and taking my estimated taxes and putting them in a high interest rate online savings account dedicated to just this. When taxes are due, I would just take it out of the account, and keep the interest? Is this worth the trouble, has anyone done this? Thanks.
Ryan

[sweeps]

(a) It's unlikely your employer will agree to it.
(b) You must pay taxes throughout the year. There are penalties if you have underwithheld too much during the year.

As the saying goes, the IRS accepts interest-free loans, but it doesn't give them.

[kilapapipa]

Do you withhold a % now? I am a teacher so my income is easy to figure and I withold a % so I owe a few hundred if anything in April.

That is about the closest you can come to not withholding IMO.

[aida2003]

As the saying goes, the IRS accepts interest-free loans, but it doesn't give them.

This is really true. I wish I could do the same.

I wouldn't go to so much trouble and stop taxes withheld from my paycheck. I think once you get in big trouble with the IRS, they'll flag your file and watch you going forward.

[pennrj430]

Hi, I don't really withhold any myself now. My company does. But, the past few years I've had to pay the state and fed within about $50 the same amount, so I think I can figure it out easy enough. I didn't know you had to pay them throughout the year, I figured that as long as I pay them what I owed at Tax Time, it would all be the same. How do self employed people, and business owners do this? Do they send out a check to the state and fed every month? Or do they pay it all at the end of the year? Thanks again.

[sweeps]

How do self employed people, and business owners do this? Do they send out a check to the state and fed every month? Or do they pay it all at the end of the year?

They pay their taxes quarterly using Form 1040 ES.

[pennrj430]

Thanks again Sweeps!

[scfr]

They pay their taxes quarterly using Form 1040 ES.

And if we underpay by too much, we have to pay not only interest but perhaps a penalty.

If the amount being withheld from your check pretty much equals what you owe, or if you end up owing just a small amount on your return, I'd say leave it as it is. "If it ain't broke, don't fix it."

[beebop25blue25]

Federal doesn't take anything out of my paycheck because I claim 5 dependents, then at the end of the year we just settle however, so why can't you claim several dependents and nothing be taken out then settle at the end of the year, I don't see where this is illegal.

[sweeps]

Federal doesn't take anything out of my paycheck because I claim 5 dependents, then at the end of the year we just settle however, so why can't you claim several dependents and nothing be taken out then settle at the end of the year, I don't see where this is illegal.

Understanding underwithholding

Underwithholding costs
If you haven't paid your taxes or paid too little during the year, the IRS will charge interest on the money it decides you should have sent in earlier. The interest is compounded daily and begins on the day the taxes were due and continues until the agency gets the money. The interest rate is variable, based on the federal short-term rate plus 3 percent, and is recalculated every three months.

In addition to the interest charged on unpaid taxes, the IRS can also hit you with a penalty. There is a late-payment charge of 0.5 percent of the tax owed for each month that your tax is unpaid after its due date. This penalty can increase up to 25 percent and can increase in 1 percent increments if you don't pay after getting several notices from the IRS.

Penalties for false information
There is a $500 civil penalty for underpayment of withholding if you claim W-4 allowances you knew you weren't entitled to and those allowances reduced the tax taken out of your pay.

And you could face criminal charges if you enter false W-4 information. This charge also applies if you fail to change your W-4 when necessary to appropriately increase your withholding. If convicted, you could be fined as much as $1,000, be jailed for up to one year, or both.

These penalties apply to intentional falsification of a W-4 in an attempt to reduce or eliminate withholding taxes. If you make a simple error -- an honest mistake -- you won't face prosecution. For example, a person who has tried to figure the number of withholding allowances correctly, but claims seven when the proper number is six, will not be charged.

[beebop25blue25]

Good thing I have 5 kids then

[MonkeyMama]

If you don't want any taxes withheld, you claim "exempt."

You can only do this legally if your tax liability was $0 last year (meaning your tax was $0). & you expect it to be $0 this year.

If you owe more than $1k at year-end to feds you'll owe a penalty.

Anyway, so no, I wouldn't mess with it. If you have a W-2 that shows $0 withholding, and you pay in estimates, that is just red flag for trouble. You will get some IRS attention. Certainly not worth it.

Your employer really wouldn't have any say though. If you want to file exempt, they don't have any say in that. You are responsible to fill out a W-4 and tell your employer what to withhold. If you claim exempt on your W-4 there's not much they can do but follow your wishes.

I looked into claiming exempt one year when I Took maternity leave. I knew our Federal taxes would be $0 that year but I couldn't legally claim exempt since I had paid taxes the year before. It's not exactly "Fair." Likewise, I wasn't up to messing with the IRS; just gave them their interest-free loan.

[pennrj430]

I'm going to just go on they way I'm going, having the company withhold. I just thought this might be another option, I didn't know it was this complicated. I just thought that as long as the IRS gets there money in April, that's all they cared about. Thanks again though.

[leighangela]

I owed more than $1000, what do I do?

I have one job with a W-2, and last year I started a second job with a 1099. I figured I might owe a little, but I had no idea I would owe over $1,000!

So I'm all set to have that deducted from my account in April. But now what do I do? Is the IRS going to send me something saying that I need to start quarterly payments?

[maat55]

I have one job with a W-2, and last year I started a second job with a 1099. I figured I might owe a little, but I had no idea I would owe over $1,000!

So I'm all set to have that deducted from my account in April. But now what do I do? Is the IRS going to send me something saying that I need to start quarterly payments?

Don't wait on the IRS for anything. As sweeps said, just send in your estimated taxes quarterly. Then you will file your 1040 at the first of next year as usual. Now you get to see the damage as you go.