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You don't get hit with a penalty. You just pay the difference. I've done this for years and years and years and years and sometimes I get a refund, but more often I end up paying money to the IRS. I have not yet gotten any "penalty". I don't know where you got that from.
20yrsinBranson
My co-worker did exactly that his 2nd year out of school while working for us and got fined. Don't remember how much but I think he put 40 or 50 withholdings on this W4.
I don't try and game the system to get more during the year. I calculate it to try and be as neutral as possible (nothing owed or refunded at the end of the year). What you pay/owe in taxes is what you pay/owe in taxes, whether you pay it now or at the end of the tax-year. The total of taxes you owe for a particular year doesn't change based on the number of withholdings you choose. Most people probably understand this, but I still run into people every year who don't understand why they "pay" taxes at the end of the year vs getting refund. Or people who think they are getting a true "refund" when all it meant was that they paid too much of their own money during the year. You're only getting your own money back :P
Last edited by Sunbather; 12-30-2013 at 02:15 PM..
The reality is that adjusting one or two witholdings doesn't add that much to your paycheck. If the $12 or whatever is going to make a difference in your budget--go for it--if not, why bother?
With interest rates on savings almost non-existant, I figure it's much better for me to get a lump sum in March that I'm much more likely to salt away in my savings account or use it for a big-ticket item than to get a few extra dollars in my paycheck each pay period. I know I'd be much more likely to fritter that away, but to each his/her own.
I also don't want to worry about having to pay anything in taxes, either.
My co-worker did exactly that his 2nd year out of school while working for us and got fined. Don't remember how much but I think he put 40 or 50 withholdings on this W4.
I don't try and game the system to get more during the year. I calculate it to try and be as neutral as possible (nothing owed or refunded at the end of the year). What you pay/owe in taxes is what you pay/owe in taxes, whether you pay it now or at the end of the tax-year. The total of taxes you owe for a particular year doesn't change based on the number of withholdings you choose. Most people probably understand this, but I still run into people every year who don't understand why they "pay" taxes at the end of the year vs getting refund. Or people who think they are getting a true "refund" when all it meant was that they paid too much of their own money during the year. You're only getting your own money back :P
Well, I was being facetious when I said 50 deductions. Of course, that is going to raise red flags with the IRS and claiming that many dependents is just plain foolish. But you can easily claim four or five without anyone raising an eyebrow, and that might be enough to reduce your withholding significantly. As for this:
Quote:
See Publication 505 (2013), Tax Withholding and Estimated Tax
"Penalties
You may have to pay a penalty of $500 if both of the following apply.
You make statements or claim withholding allowances on your Form W-4 that reduce the amount of tax withheld.
You have no reasonable basis for those statements or allowances at the time you prepare your Form W-4.
It further states on that publication....
"A simple error or an honest mistake will not result in one of these penalties."
The IRS is going to have to PROVE INTENT. Good luck with that one. All you have to say is... "Oh I guess I misunderstood the worksheet".
Of course the government wants your money...They get to use it for a year without paying you any interest at all! How convenient for them.
I would agree with you. The only reason I'm considering this is because I ran the numbers and this year I will pay $12K in taxes. I estimated my income and taxes for 2014 and I will owe about $5K. So to have the current with holdings for another 3 months seems useless to me since we can really use that money to get supplies. Like I said I calculate my taxes due on a quarterly basis and if I"m short, I'll send a payment to the IRS and rework my W-4. This way I don't get a penalty. I don't see how they would fine me either because in the end I'll be +/- $300 on the year.
It seems like you have a better understanding than most people and aren't going to get hit with a huge bill at the end. Most post in this thread is about people trying to cheat the system and get penalized about it. You are adjusting quarterly which is acceptable, especially if you have huge swings in your income.
I know a person that went from 10 to 100 exemptions due to their employers mistake, they had a huge tax bill but I don't know if there was a penalty.
It seems like you have a better understanding than most people and aren't going to get hit with a huge bill at the end. Most post in this thread is about people trying to cheat the system and get penalized about it. You are adjusting quarterly which is acceptable, especially if you have huge swings in your income.
I know a person that went from 10 to 100 exemptions due to their employers mistake, they had a huge tax bill but I don't know if there was a penalty.
There should not be a penalty if it was the employers mistake.
It seems like you have a better understanding than most people and aren't going to get hit with a huge bill at the end. Most post in this thread is about people trying to cheat the system and get penalized about it. You are adjusting quarterly which is acceptable, especially if you have huge swings in your income.
I know a person that went from 10 to 100 exemptions due to their employers mistake, they had a huge tax bill but I don't know if there was a penalty.
It's the same money either they pay it as they go along, or they pay it at the end. The total tax liability is based on adjusted gross income.
It's the same money either they pay it as they go along, or they pay it at the end. The total tax liability is based on adjusted gross income.
20yrsinBranson
Most of what you posted is right except tax liability is based on taxable income. Adjusted gross income is used to determine deduction floors and eligibility for various credits.
IRS generally doesn't care how many exemptions you claim on a W-4, as long as you pay your tax. If they are notified of potential fraud or you have problems paying your taxes they may notify your employer to withhold a specified amount from future paychecks.
I would agree with you. The only reason I'm considering this is because I ran the numbers and this year I will pay $12K in taxes. I estimated my income and taxes for 2014 and I will owe about $5K. So to have the current with holdings for another 3 months seems useless to me since we can really use that money to get supplies. Like I said I calculate my taxes due on a quarterly basis and if I"m short, I'll send a payment to the IRS and rework my W-4. This way I don't get a penalty. I don't see how they would fine me either because in the end I'll be +/- $300 on the year.
What I have done is put my max allowable exemptions(2 in my case). I came up short by $200-300, because e I had extra income from savings and stocks. I added $10 per paycheck($240/yr) to "Line 6 Additional Withholding".
You can add an extra $10-20 per paycheck($240-480/yr) to additional withholding without decreasing your allowances.
It would allow you to meet somewhere in the middle of 4 and 5 allowances. A great toll is the ADP payroll calculator. It has quick and easy for doing the calculations. The "additional fed withholding" box is already included.
What I have done is put my max allowable exemptions(2 in my case). I came up short by $200-300, because e I had extra income from savings and stocks. I added $10 per paycheck($240/yr) to "Line 6 Additional Withholding".
You can add an extra $10-20 per paycheck($240-480/yr) to additional withholding without decreasing your allowances.
It would allow you to meet somewhere in the middle of 4 and 5 allowances. A great toll is the ADP payroll calculator. It has quick and easy for doing the calculations. The "additional fed withholding" box is already included.
I'm not trying to get additional monies with held, I"m trying to get less money with held. The only way to do that is to increase allowances. I use paycheckcity to calculate.
What I have done is put my max allowable exemptions(2 in my case). I came up short by $200-300, because e I had extra income from savings and stocks. I added $10 per paycheck($240/yr) to "Line 6 Additional Withholding".
You can add an extra $10-20 per paycheck($240-480/yr) to additional withholding without decreasing your allowances.
It would allow you to meet somewhere in the middle of 4 and 5 allowances. A great toll is the ADP payroll calculator. It has quick and easy for doing the calculations. The "additional fed withholding" box is already included.
I know that the interest rate on savings isn't bupkus these days, but as a matter of principal I refuse to let the government "keep" my money, using it for whatever they want until I file a tax return at the end of the year. It is my money, and I want to be in control of it, even if it is only a couple of hundred dollars. I don't want them using MY money to line the pockets of the corrupt politicians or fund programs that I do not support.
It's not about the money. It's a matter of principal.
20yrsinBranson
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