My last pay check they took out quite alot of money. So what i was wondering would it be smarter to claim exempt to save myself from paying the taxes, or pay the taxes now and later get the tax return? I am confused on the subject was just wondering some input!
2007-06-18 05:17:42 · 8 answers · asked by Ronster 3 in Business & Finance ➔ Taxes ➔ United States
Pay the taxes and get it back in the return. You don't want to be stuck in April owing money that you don't have because you wanted to spend it up front. Sure, you'll have to wait awhile, but I've seen a lot of people get stuck when they ended up owing thousands because they claimed Exempt and they weren't supposed to. Claim a couple to get a little bit more money, but don't go exempt. Especially if you don't plan to save any money for a rainy day.
2007-06-18 05:25:51 · answer #1 · answered by kraezee23 2 · 0⤊ 0⤋
Claiming EXEMPT does NOT exempt you from paying taxes!
You may ONLY claim EXEMPT on Form W-4 if you meet BOTH of the following tests:
1. You had $0 tax liability last year. That's the total tax line on your tax return. If it's anthing more than $0, you're ineligible.
2. You must reasonably expect to have $0 tax liability for the current tax year. If you are a Single filer and cannot be claimed as a dependent by another taxpayer and earn more than $8,750 in wages subject to withholding you will have some tax liability and are ineligible to claim EXEMPT from withholding.
If you improperly claim EXEMPT you will be subject to penalties and interest for underpayment of taxes PLUS a $500 administrative penalty for filing an improper Form W-4 with your employer.
2007-06-18 05:24:30 · answer #2 · answered by Bostonian In MO 7 · 0⤊ 0⤋
You should not claim "exempt" because you will be under-withheld at the end of the year. If you do not have enough withheld, you could be subject to IRS penalties when you file your taxes. You should aim to have your withholding come as close to your actual tax bill as possible. That way, you haven't given the IRS an interest-free loan (if you have too much withheld) and you won't have to come up with a big lump sum and maybe pay penalties (if you haven't had enough withheld).
The W-4 form includes a worksheet to compute your exemptions. You should use that to make sure your withholding is correct for your circumstances.
2007-06-18 05:26:13 · answer #3 · answered by Kathryn 6 · 0⤊ 0⤋
Let them take the money now. If you claim exempt, and you make more than the required limit, you'll owe the IRS. Which means no tax return and all the money that you received extra in each paycheck you will technically be giving it back. So just let them take it now, and look forward to the small amount of money you will get at the end of the year. Call the IRS to find out if you make less than the required limit and then make your decision.
2007-06-18 05:29:49 · answer #4 · answered by divaheart06 2 · 0⤊ 0⤋
bostonianinmo's answer is 100%.
Unless you are living pay check to pay check (not able to save anything) you should claim just enough deductions to owe a small amount when you file your return.
It does not make any financial sense to lend the IRS interest free money.
Everything the IRS does will encourage you to have more deducted than necessary to 'keep you from under paying' your tax. They also know that many will not file for all or any of the deductions they might be entiteled too.
Remember, it is your money, not theirs. And if you are not saving anything you are living beyond your means which is a formula for personal financial disaster.
2007-06-18 06:18:08 · answer #5 · answered by no income tax 1 · 0⤊ 0⤋
Claiming exempt doesn't save you from paying taxes if you owe them - it just postpones the payments. And if you claim exempt but actually owe taxes, you are doing so illegally and can be subject to a large fine.
If your income for the year is low enough that you aren't going to owe any tax (for 2006 was $5150 if you're a dependent, $8450 if you aren't) then go ahead and claim exempt.
2007-06-18 05:37:19 · answer #6 · answered by Judy 7 · 0⤊ 0⤋
With the bite out of each paycheck in theory your whole tax bill is paid at the time you file your return; and you usually have a refund. If you put down expempt on your W-4 then you have the joy of paying it all in one lump sum when you file your taxes; and risk having one of those little come to jesus meetings with the nice man from the IRS on the subject of perjury.
2007-06-18 09:17:34 · answer #7 · answered by acmeraven 7 · 0⤊ 0⤋
Just be careful if claim exempt, because you might end up owning at the end of the year. It depends on how much you make.
2007-06-18 05:27:04 · answer #8 · answered by sweetie 2 · 0⤊ 0⤋