So that you can put the money that would normally be withheld from your paycheck for taxes into a interest bearing account and then you can pay your taxes at the end of the tax year? Isn't letting the Gov't withhold money from your paycheck pretty much giving them an interest free loan (i.e. though you're getting a refund, you didn't have access to that money for most of the year)?
2007-02-09 13:50:58 · 6 answers · asked by trer 3 in Business & Finance ➔ Taxes ➔ United States
When you claim EXEMPT on your W4, you are certifying that you got a refund of all taxes withheld the prior year and had zero tax liability and that you expect to have zero tax liability for the current year. If this is not true, you are filing a fraudulent W4.
Taxes are due when the income is earned, NOT on the filing deadline date. If you don't have sufficient tax withheld to cover your tax liability, you may be subject to penalties and interest for underwithholding of taxes.
The SMART way to handle the situation is to make sure that just enough is withheld from your pay to cover your tax liability, no more and no less. If you use the worksheets on Form W4 you will arrive at a withholding level that will leave you with a tiny refund or a tiny balance due on April 15th. AND no heat from the IRS.
2007-02-09 18:48:33 · answer #1 · answered by Bostonian In MO 7 · 0⤊ 0⤋
It is illegal to claim exempt if you aren't. Read the instructions for the W-4. If you do and end up owing very much, you'll pay penalties for underwithholding.
f they withhold too much, yes, it's giving them an interest free loan and doesn't make sense. But if you owe any taxes at all, you would not claim exempt to be able to break even, you'd just adjust your allowances on your W-4.
2007-02-09 14:02:41 · answer #2 · answered by Judy 7 · 3⤊ 0⤋
If you put EXEMPT on your W4, and you are not truly exempt, you must make quarterly estimated tax payments. i.e. you have to write a check and send it in to the IRS every 3 months.
If you don't make quarterly estimated payments, your taxes will be considered late, and you will be hit with major penalties when you file.
2007-02-09 13:54:45 · answer #3 · answered by Lisa A 7 · 2⤊ 0⤋
No, you aren't exempt unless you make under like $50 dollars or something, and you would end up paying out more at tax time.
2007-02-09 13:54:55 · answer #4 · answered by sarah c 2 · 0⤊ 2⤋
The first answer is correct. You will end up paying a hefty underpayment penalty.
2007-02-09 13:59:10 · answer #5 · answered by miketorse 5 · 1⤊ 0⤋
good strategy, no penalty as long as u make up before year end
2007-02-10 04:07:03 · answer #6 · answered by Anonymous · 0⤊ 1⤋