Delay federal tax withoholdings?

[MoonLiteNite]

So i looked online for 5mins and just kept getting answers for other crap.... figured i would post here.

Is there a "legal" way, to have your employer NOT withold taxes for you?
Then come tax time, you just owe the IRS whatever?

The reason i ask is everyone is always SOOO happy when they get a refund, but uhhh a refund is BAD, it means you just gave the government a free loan and YOU lost money!
Made me wonder, if there was a way the government could give ME a free loan for the year, and i just bend over and pay jump sum in april?

[badbear]

Not really. You are supposed to pay as you go, either through payroll deductions or quarterly estimated tax payments. You can underpay your tax bill throughout the year by up to $1000 and not be charged interest, so that is about as good as you can shoot for. Specifically the IRS guidance says:

Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or if they paid at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.

[Drifterrider]

So i looked online for 5mins and just kept getting answers for other crap.... figured i would post here.

Is there a "legal" way, to have your employer NOT withold taxes for you?
Then come tax time, you just owe the IRS whatever?

In the US, yes there is.  Write "Exempt" on your W-4.

Here is the kicker.  If you owe too much to Uncle Sam, you will have to pay a penalty for not having paid as you go.  The same might apply at the state level. 

You can get the federal numbers at www.irs.gov   search for under payment.

[secondcor521]

^I believe there are rules or laws that restrict whether or not one can claim exempt.  Generally, you have to be exempt in order to claim that you are exempt.

If you are disciplined enough to manage your cash flow, what you can do is file a W-4 with a large number of allowances every January to reduce your withholding amounts to zero.  Figure out what your tax liability will be each summer.  Then file an amended W-4 in, say, October, and have your employer send your entire paycheck, or a very large amount of it, to the IRS.  One risk to this approach to be aware of is if you lose your job in October and don't get another one quickly, you would be up a creek without a paddle.  Another risk, I suppose, is not figuring your tax liability or withholding amount correctly.

In the above situation you could also file an estimated tax payment by January 15th of the following year to get you within the $1000 safe harbor limit.  I did that one year to avoid the underpayment penalty and it appeared to work.

Also, there are actually three safe harbors that avoid the underpayment penalty.  One is being within $1,000 of your tax owed.  I don't recall what the other two are, but you could see if those would give you more leeway.  Google "safe harbor rules site:irs.gov" and that will probably get you the info.

It doesn't quite get you to what you want, but it is closer.

[cliffhanger]

I did this at the beginning of the year. I'd say most people aren't eligible for 'exempt' so I just claimed 10 allowances and paid no tax from my paycheck. I did this in order to increase cash flow while I purchased and fixed up a house. Once I got tenants, I changed my allowances to 0 to make up.

Can't say I recommend doing this yet, since it remains to be seen how the deductions from renovation costs will play into my taxes this year. I'll likely be close to the $1000 limit.

[MoonLiteNite]

Thanks for all the advice and answers.
I couldn't find a hard limit as to how much you can owe without paying EXTRA taxes, but i didn't look too hard.

What i will do is adjust the allowance on my w4 and compare it from paycheck to paycheck. I'll double mine from 2 to 4 and see what happens.

[protostache]

Thanks for all the advice and answers.
I couldn't find a hard limit as to how much you can owe without paying EXTRA taxes, but i didn't look too hard.

What i will do is adjust the allowance on my w4 and compare it from paycheck to paycheck. I'll double mine from 2 to 4 and see what happens.

You can use the salary calculator at Paycheck City to figure out how your changes affect your take home pay.

The IRS won't charge extra taxes. They will charge you penalties and interest for under withholding. If you paid zero Federal tax throughout the year and then paid it all at the end, the penalties and interest are 2.001% of the tax due for 2016. If you did pay some via withholding or estimated payments it'll be less because you can figure each quarter separately (tax for Q4 isn't late if you've paid it by Jan 15th of the following year, for example). If you pay at least 100% what you owed last year or 90% of what you owe this year you fall into a safe harbor and don't pay any penalty or interest.

Your strategy may be worth it if you can make >2.001% on the money you would otherwise be depositing with the IRS. Personally I don't play games with the IRS and make sure to always pay up to one of the safe harbors.

[Heroes821]

Probably not what you are looking for, but I recently have been "forced" to not have my employer pay taxes by getting laid off, starting a single employee LLC (probably will file as an s-corp) and then getting hired as a contractor by the same company for a significant increase in pay.  Some companies will be alright will having you on the books as a higher cost contractor with no benefits that they can then keep on 1 year contracts.

[Undecided]

^I believe there are rules or laws that restrict whether or not one can claim exempt.  Generally, you have to be exempt in order to claim that you are exempt.

If you are disciplined enough to manage your cash flow, what you can do is file a W-4 with a large number of allowances every January to reduce your withholding amounts to zero.  Figure out what your tax liability will be each summer.  Then file an amended W-4 in, say, October, and have your employer send your entire paycheck, or a very large amount of it, to the IRS.  One risk to this approach to be aware of is if you lose your job in October and don't get another one quickly, you would be up a creek without a paddle.  Another risk, I suppose, is not figuring your tax liability or withholding amount correctly.

In the above situation you could also file an estimated tax payment by January 15th of the following year to get you within the $1000 safe harbor limit.  I did that one year to avoid the underpayment penalty and it appeared to work.

Also, there are actually three safe harbors that avoid the underpayment penalty.  One is being within $1,000 of your tax owed.  I don't recall what the other two are, but you could see if those would give you more leeway.  Google "safe harbor rules site:irs.gov" and that will probably get you the info.

It doesn't quite get you to what you want, but it is closer.

Although one "can" do whatever they want with the W-4 to alter withholdings, there is in fact a whole worksheet devoted to calculating the exemptions to which you're entitled, and your signature on the W-4 says you've completed it truthfully "under penalty of perjury."

For most taxpayers, having 100% of the prior year's tax liability withheld (or paid as estimates in equal installments) will qualify for the safe harbor from penalties. For higher income taxpayers, it's 110%. When you rely on estimated payments, if they're not equal, you can end up owing penalties if the inequality in the payments doesn't reflect inequality in the periodic income (and when I've had to do that, I found figuring out all the timing to be a pain, as it wasn't something I was otherwise really set up for, e.g., figuring out the timing of dividend payments, etc.). 

[MoonLiteNite]

Let's use round numbers and estimate your tax bill will be $48k on $240k in income.  Normally you would pay $4k per month in taxes.  Instead you'll pay 0 for the first 9 months and then your paycheck drops to 0 for the rest of the year.  The average in your account is about 24k for 9 months.  At 1% interest that nets you about $180.

Even for a rather large income it's not worth the hassle and risk.

Clearly see the point. My yearly income is around 40k.
But even then, a few bucks every year is a few bucks every year :) But yeah not worth the trouble of setting up and then having to pay up.