Would it be 'legal' to decrease the fed. tax withholding?

Question

from my check (by say, changing deductions to Married - 7) and then putting the money "saved" in an account, earn interest on it, and pay quarterly taxes with it? I am not self employed, I do have a regular W-2 type job. I know about not over withholding so you can get a big fat tax refund...but what i'm asking is what about under withholding and getting the interest on the money for the quarter?

Answer 1

You can withhold however much you want, and do whatever you want with the money. You'll wind up paying back the money at tax time. I wouldn't think you'd make enough interest to make it worth your while.

Answer 2

It's not legal to claim more allowances than you're entitled to. You won't go to jail over it, but if the amount you owe when you file is large enough, you'll owe penalties for under-withholding that would probably wipe out the interest you made and then some.

Answer 3

Yes it is illegal, but some missguided people do it.
Your idea of saving it receiving interest or it from a bank will work. The trick is not to spend the money you are saving. If you do you will have a big tax bill at the end of the year and have nothing in savings.

Answer 4

That would be legal as long as you paid in the quarterly estimated payments on time. It would probably be a technical violation of the law but you wouldn't be penalized.

The minimal amount of interest you'd get would hardly be worth it unless your pay is VERY high.

Answer 5

I seriously doubt you'd get enough interest to offset the additional penalties incurred by not having paid in enough tax money.

If you want to get closer to breaking even, you might reduce the number of allowances on the W-4 by one or two.

Answer 6

They withhold what you tell them to on the W-4 you filled out. Check with your employer to see what you listed on it. You may want to up how much they take out for the future.

Answer 7

it's not worth the little money you save