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TOPIC: Question about going tax exempt on mulitple pay periods

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December 26, 2012 5:44 AM
Hello,
At my job, I usually go tax exempt twice a year (I want money now and just take it off for tax time), but this year I did it 4-5 times. Can I get in any legal trouble for doing it 4-5 times a year? I usually get pretty nice refunds even for going tax exempt twice a year.

Thanks
December 26, 2012 5:53 AM
You shouldnt get in trouble as long as you are not going to owe a lot of money to the IRS when its time to file your taxes.
  13926585
December 26, 2012 6:02 AM
I think I should still get a small refund, at worst I think it would even out.

I just wasn't sure if you get a penalty just because you go tax exempt when you shouldnt/dont qualify.
December 26, 2012 8:17 AM
If it is just the standard payroll taxes you will be ok as long as your entire tax obligation is paid by April 15. They don't care when you pay them, just that you pay them by the 15th. Other payroll deductions (like insurance), if not paid on schedule could cause a lapse in coverage or a loss of coverage.
December 26, 2012 8:39 AM
I work in governmental payroll and honestly I am not quite sure if the "rules" change for regular payroll, as I have only worked governmental. We encourage our clients not to let their employees do this because the city/county can actually be held liable by the IRS for any underwithholdings. However, there have been a few employees' that still go exempt here and there like you do. I do not believe you can get in legal trouble doing this, as long as your employer is still withholding your medicare and ss withholdings. The best thing to do is check out the IRS website just to make sure... http://www.irs.gov/
  9168866
December 26, 2012 8:44 AM
I am an accountant and sometimes cover for our payroll clerk. You will not get in any legal trouble, but you may end up owing depending on your "regular" withholdings.
  5675558
December 26, 2012 8:44 AM
I used to own my own business, i dont think you really are supposed to do this, and frankly, I don't understand why you do it that way. That's weird. Just increase your exemptions to flatten it throughout the year so you wind up owing as close to zero as possible. There are tools the IRS provides for calculating this. This puts the additional money in your pocket all year. I think at one point, I used to exempt up to 9, or whatever the legal limit was at that time, and still got back 5 digits. I hate the IRS more than probably anyone. It truly is extortion. But, play within the rules. They always win, in the end.
Edited by neverstray On December 26, 2012 8:46 AM
December 26, 2012 9:26 AM
QUOTE:

I used to own my own business, i dont think you really are supposed to do this, and frankly, I don't understand why you do it that way. That's weird. Just increase your exemptions to flatten it throughout the year so you wind up owing as close to zero as possible. There are tools the IRS provides for calculating this. This puts the additional money in your pocket all year. I think at one point, I used to exempt up to 9, or whatever the legal limit was at that time, and still got back 5 digits. I hate the IRS more than probably anyone. It truly is extortion. But, play within the rules. They always win, in the end.


I do it so I get my money in advance. Some weeks were heavy with OT hours so I wanted all of it. I know that it comes out of my refund in April. I was just questioning whether this is legal or not.
December 26, 2012 9:34 AM
QUOTE:

Hello,
At my job, I usually go tax exempt twice a year (I want money now and just take it off for tax time), but this year I did it 4-5 times. Can I get in any legal trouble for doing it 4-5 times a year? I usually get pretty nice refunds even for going tax exempt twice a year.

Thanks


No, you could actually *legally* claim exempt all year. It isn't advisable though because then you end up with a big bill on 4/15!
  25631519
December 26, 2012 9:37 AM
QUOTE:

QUOTE:

I used to own my own business, i dont think you really are supposed to do this, and frankly, I don't understand why you do it that way. That's weird. Just increase your exemptions to flatten it throughout the year so you wind up owing as close to zero as possible. There are tools the IRS provides for calculating this. This puts the additional money in your pocket all year. I think at one point, I used to exempt up to 9, or whatever the legal limit was at that time, and still got back 5 digits. I hate the IRS more than probably anyone. It truly is extortion. But, play within the rules. They always win, in the end.


I do it so I get my money in advance. Some weeks were heavy with OT hours so I wanted all of it. I know that it comes out of my refund in April. I was just questioning whether this is legal or not.


Legal? Maybe.
Silly? Absolutely
December 26, 2012 9:38 AM
QUOTE:

I work in governmental payroll and honestly I am not quite sure if the "rules" change for regular payroll, as I have only worked governmental. We encourage our clients not to let their employees do this because the city/county can actually be held liable by the IRS for any underwithholdings. However, there have been a few employees' that still go exempt here and there like you do. I do not believe you can get in legal trouble doing this, as long as your employer is still withholding your medicare and ss withholdings. The best thing to do is check out the IRS website just to make sure... http://www.irs.gov/


Claiming "exempt" on your W-4 has nothing to do Social Security/Medicare withholdings or local/state withholdings.
  25631519
December 26, 2012 9:42 AM
QUOTE:

QUOTE:

I used to own my own business, i dont think you really are supposed to do this, and frankly, I don't understand why you do it that way. That's weird. Just increase your exemptions to flatten it throughout the year so you wind up owing as close to zero as possible. There are tools the IRS provides for calculating this. This puts the additional money in your pocket all year. I think at one point, I used to exempt up to 9, or whatever the legal limit was at that time, and still got back 5 digits. I hate the IRS more than probably anyone. It truly is extortion. But, play within the rules. They always win, in the end.


I do it so I get my money in advance. Some weeks were heavy with OT hours so I wanted all of it. I know that it comes out of my refund in April. I was just questioning whether this is legal or not.


Yes, it's perfectly legal. And it makes perfect sense. The withholdings on OT weeks are probably too large for your personal situation. That's what happens to me as well. I work in the tax industry, which means about 6 weeks of heavy overtime, plus two months off, and two-three months of part-time hours. I claim exempt the whole year though because we always get a big refund. I used to be able to fill out a W-5 and get part of my "refund" added to my paychecks.
  25631519
December 26, 2012 9:43 AM
Its all OK as long as on April 15, you can pony up any discrepancy.
December 26, 2012 9:44 AM
QUOTE:

Legal? Maybe.
Silly? Absolutely


No, not silly at all. A lot of people do this because it makes sense for their personal tax situation.
  25631519
December 26, 2012 9:44 AM
QUOTE:

If it is just the standard payroll taxes you will be ok as long as your entire tax obligation is paid by April 15. They don't care when you pay them, just that you pay them by the 15th.


This is absolutely not true. There can be penalties for under withholding. http://www.ehow.com/facts_5855417_penalty-underwithholding-taxes_.html

Moral of the story - get your tax advice from a tax advisor, not a weight-loss site.
Edited by agthorn On December 26, 2012 9:48 AM
December 26, 2012 9:49 AM
This year is going to be different than the previous years. You may not get as big of a refund as you have before due to tax benefits expiring, and changing. Many of the child tax credits and things of that nature will be changing and you will not get as much.
  3723126
December 26, 2012 9:50 AM
QUOTE:

QUOTE:

Hello,
At my job, I usually go tax exempt twice a year (I want money now and just take it off for tax time), but this year I did it 4-5 times. Can I get in any legal trouble for doing it 4-5 times a year? I usually get pretty nice refunds even for going tax exempt twice a year.

Thanks


No, you could actually *legally* claim exempt all year. It isn't advisable though because then you end up with a big bill on 4/15!


This is not true - if you do not have enough withheld to cover your tax liability for the year, you may owe penalties. For example, those subject to the AMT (alternative minimum tax) have to make quarterly estimated payments for the amount by which they will be underwithheld for the year in order to avoid penalties.

Also...depending upon how manual the system is (if you or they are doing the data entry), you are not making friends in your payroll department.
  9319887
December 26, 2012 9:51 AM
QUOTE:

This year is going to be different than the previous years. You may not get as big of a refund as you have before due to tax benefits expiring, and changing. Many of the child tax credits and things of that nature will be changing and you will not get as much.


for 2013, not 2012
  9319887
December 26, 2012 9:51 AM
QUOTE:

This year is going to be different than the previous years. You may not get as big of a refund as you have before due to tax benefits expiring, and changing. Many of the child tax credits and things of that nature will be changing and you will not get as much.

If/when those go into effect, they're always forward-looking (i.e. for income earned in 2013, not 2012).
December 26, 2012 10:02 AM
QUOTE:

QUOTE:

QUOTE:

I used to own my own business, i dont think you really are supposed to do this, and frankly, I don't understand why you do it that way. That's weird. Just increase your exemptions to flatten it throughout the year so you wind up owing as close to zero as possible. There are tools the IRS provides for calculating this. This puts the additional money in your pocket all year. I think at one point, I used to exempt up to 9, or whatever the legal limit was at that time, and still got back 5 digits. I hate the IRS more than probably anyone. It truly is extortion. But, play within the rules. They always win, in the end.


I do it so I get my money in advance. Some weeks were heavy with OT hours so I wanted all of it. I know that it comes out of my refund in April. I was just questioning whether this is legal or not.


Yes, it's perfectly legal. And it makes perfect sense. The withholdings on OT weeks are probably too large for your personal situation. That's what happens to me as well. I work in the tax industry, which means about 6 weeks of heavy overtime, plus two months off, and two-three months of part-time hours. I claim exempt the whole year though because we always get a big refund. I used to be able to fill out a W-5 and get part of my "refund" added to my paychecks.


Thanks for the reply. I went exempt on big pay periods since I will go into a larger tax bracket during those weeks. I usually go exempt 2-3 times a year, but this year it was 5.
December 26, 2012 10:05 AM
QUOTE:

QUOTE:

If it is just the standard payroll taxes you will be ok as long as your entire tax obligation is paid by April 15. They don't care when you pay them, just that you pay them by the 15th.


This is absolutely not true. There can be penalties for under withholding. http://www.ehow.com/facts_5855417_penalty-underwithholding-taxes_.html

Moral of the story - get your tax advice from a tax advisor, not a weight-loss site.


This would not effect the OP though.
  25631519
December 26, 2012 10:09 AM
QUOTE:

QUOTE:

QUOTE:

If it is just the standard payroll taxes you will be ok as long as your entire tax obligation is paid by April 15. They don't care when you pay them, just that you pay them by the 15th.


This is absolutely not true. There can be penalties for under withholding. http://www.ehow.com/facts_5855417_penalty-underwithholding-taxes_.html

Moral of the story - get your tax advice from a tax advisor, not a weight-loss site.


This would not effect the OP though.

Maybe, maybe not. I'm not a tax advisor so I can't tell OP what's best for their situation. I can tell OP that there is a lot of factually incorrect information in this thread, as several people have repeated the "you're okay as long as you pay by April 15th" statement. I wouldn't go to H&R block with questions about dieting, and I wouldn't come to MFP for tax advice.
Edited by agthorn On December 26, 2012 10:09 AM
December 26, 2012 10:10 AM
QUOTE:

QUOTE:

QUOTE:

Hello,
At my job, I usually go tax exempt twice a year (I want money now and just take it off for tax time), but this year I did it 4-5 times. Can I get in any legal trouble for doing it 4-5 times a year? I usually get pretty nice refunds even for going tax exempt twice a year.

Thanks


No, you could actually *legally* claim exempt all year. It isn't advisable though because then you end up with a big bill on 4/15!


This is not true - if you do not have enough withheld to cover your tax liability for the year, you may owe penalties. For example, those subject to the AMT (alternative minimum tax) have to make quarterly estimated payments for the amount by which they will be underwithheld for the year in order to avoid penalties.

Also...depending upon how manual the system is (if you or they are doing the data entry), you are not making friends in your payroll department.


The bolded part is the crux of the matter. If you *normally* get a refund, and *normally* have zero liability, or only a small liability, then withholdings only increase your refund. For example, if I didn't claim exempt on my W-4, then the tax refund would be close to $20k.
  25631519
December 26, 2012 10:12 AM
TAX advice on MFP....


Awesome..
December 26, 2012 10:12 AM
QUOTE:

QUOTE:

QUOTE:

QUOTE:

If it is just the standard payroll taxes you will be ok as long as your entire tax obligation is paid by April 15. They don't care when you pay them, just that you pay them by the 15th.


This is absolutely not true. There can be penalties for under withholding. http://www.ehow.com/facts_5855417_penalty-underwithholding-taxes_.html

Moral of the story - get your tax advice from a tax advisor, not a weight-loss site.


This would not effect the OP though.

Maybe, maybe not. I'm not a tax advisor so I can't tell OP what's best for their situation. I can tell OP that there is a lot of factually incorrect information in this thread, as several people have repeated the "you're okay as long as you pay by April 15th" statement. I wouldn't go to H&R block with questions about dieting, and I wouldn't come to MFP for tax advice.


I'm basing it on OP's reference to occasional OT and the statement, " I usually get pretty nice refunds."
  25631519

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