Will I get in trouble for writing EXEMPT on my W4?

Question

I would like to stop having taxes withheld from my paychecks. I understand that I will still be liable for paying them come tax season. Is it ok if I go ahead and change my W4 to exempt? I plan on paying my taxes of course, just later. Am I allowed to do this?

"On line 7 where you would claim exempt, it says "This year ... I expect to have no tax liability." But in your question here, you are saying that you DO expect to have tax liability. It's pretty clear that NO, you aren't allowed to claim exempt when you don't meet the rules to do so. "

That is true but I've heard of people being able to pay all at tax season.

For all of you asking why I want to keep my money a little longer, it's called interest :) My portfolio has maintained a 20%+ yield for the last few years, why not squeeze the interest out of what I pay in taxes?

I'm not worried about not being able to come up with money to pay taxes, there is no "what if."

Answer 1

You may only claim EXEMPT if you meet the following tests:

1. You had $0 tax liability last year. That means that the Total Tax line of your return was $0.

2. You reasonably expect to have $0 tax liability this year.

From the sound of your question it appears that you DO expect to have a tax liability this year. For that reason you may NOT claim EXEMPT for withholding purposes. Doing so would constitute filing a fraudulent Form W-4. There's a $500 penalty for doing that.

You need to understand that your taxes are not due and payable on April 15th. They are due and payable as the income is earned. On top of the $500 penalty for fraudulent filing, you would also face penalties and interest for underpayment of taxes throughout the year. That would eat heavily into any interest that you might earn by socking the money away until April 15th.

Answer 2

Technically, no, you're not allowed to claim exempt unless the two statements in line 7 of the W-4 apply to you.

That being said, if you give your employer a W-4 with Exempt written in box 7, your employer is required to stop withholding federal tax from your paycheck.

But do make sure to pay your estimated quarterly payments. Yep, quarterly, not just when you file your taxes next year. The IRS assesses a penalty if you do not pay at least 90% of your tax liability through payroll withholdings and quarterly estimated payments during the year.

By the way, "Angie" is incorrect that employers must send a copy of your W-4 to the IRS if you do so; that used to be true a few years ago, but it is no longer required.

Answer 3

If you come up over $1,000 short on withholding you will get hit with interest and penalties. If you're making over 20% a year interest it might be worth it to pay the interest and penalties (I don't know the formulas), but declaring yourself exempt isn't the way to do it. Instead you should claim a bunch of deductions so your withholding is reduced, but not to zero.

I'm sure this is a dangerous game, and if you're too blatant about underwithholding at some point the IRS will go after you for fines, not just the standard penalty.

I'd like to know who is paying you over 20% interest?

Answer 4

Yes, you could get in trouble, and could be fined $500 in addition to possible penalties for underwithholding. Read the part right above your signature on the W-4. It says that you swear under penalty of perjury that the information is true, correct and complete. On line 7 where you would claim exempt, it says "This year ... I expect to have no tax liability." But in your question here, you are saying that you DO expect to have tax liability. It's pretty clear that NO, you aren't allowed to claim exempt when you don't meet the rules to do so.

Answer 5

If you know you are going to pay taxes then why are you doing this? If you end up paying more than $500 at the end of the year, you may also have to pay a penalty as well. Are you getting to much of a refund at the end of the year, maybe you should reduce your exemptions on Line 5 on your W4 form instead.

Answer 6

I wound consult a tax professional. Al Capone may have died of a STD; however the IRS is the only true entity that took down this very powerful Mob Boss. While you intend to pay your taxes, you are not necessarily exempt and therefore writing that would be false.

If you are a 1099, Independent Contractor you can then pay your taxes on a quarterly basis; however please check with someone that does this for a living.

I wish you well.

Answer 7

Companies are required to report to the IRS anyone who claims 9 or more exemptions on their W4. This is usually done to reduce tax withholdings to zero. This IRS can actually override your requested exemptions and force the taxes to be taken. Let's face it, if everyone did that, the government would have no money with which to operate from May until the next April.

Answer 8

not really - why would you wait to pay them? What happens if you can't come up with the money you owe at the end of the year? You have to make at least quarterly estimated pmts to avoid underpayment penalties and YOU have to calculate how much to deposit - a lot easier letting your paycheck do it automatically

Answer 9

not really - why would you wait to pay them? What happens if you can't come up with the money you owe at the end of the year? You have to make at least quarterly estimated pmts to avoid underpayment penalties and YOU have to calculate how much to deposit - a lot easier letting your paycheck do it automatically

Answer 10

What happens if you plead the fifth amendment and don't fill out a W-4 ?