Author Topic: Tax Withholdings/Exemptions  (Read 1123 times)

VioletVixen

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Tax Withholdings/Exemptions
« on: February 03, 2015, 02:47:38 PM »
Could someone explain to me what the purpose of withholdings are and why one might want to claim more exemptions on their W-2 and OWE taxes rather than have the refund? Is it because you'd rather invest that extra income each month (so it earns interest during the year) rather than put the lump sum (from the refund) in at the end?

JCfire

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Re: Tax Withholdings/Exemptions
« Reply #1 on: February 03, 2015, 02:56:39 PM »
Could someone explain to me what the purpose of withholdings are and why one might want to claim more exemptions on their W-2 and OWE taxes rather than have the refund? Is it because you'd rather invest that extra income each month (so it earns interest during the year) rather than put the lump sum (from the refund) in at the end?

Yes, the point is simply that you'd generally rather have money now instead of having the same amount of money later.

MDM

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Re: Tax Withholdings/Exemptions
« Reply #2 on: February 03, 2015, 06:35:37 PM »
In the extreme, having too much withheld can cause a life-altering cash flow shortage.  See http://forum.mrmoneymustache.com/off-topic/poor-folks-are-victims/msg501170/#msg501170 for a real example: "...was evicted because she got far behind in paying her portion of the rent."