Can I not have taxes withheld from my paycheck?

[Phantom Warrior]

I had an idea the other day.  I'm not sure whether it's brilliant or impossible.

Is it possible to not have any money withheld from my paycheck, put the extra money into a savings account (or something), and then pay my tax out of that money I've saved at the end of the year?  The advantage being I could earn interest on the money all year long.  I'm aware that employers are required to withhold money from you.  Is there a way to reduce that by adjusting your exemptions or something?

[K Frame]

Wouldn't really be a wise thing to do.

If you owe more than, IIRC, $1,000 to the gubmint at the end of the tax year you will owe a penalty, which I believe is normally %10 on the amount over $1,000.

So, if you were to owe $3,500, you'd have a penalty on $2,500, or $250, which would be FAR more than what you'd earn in interest.

What you want to do is finagle with your withholding so that you're as close to zero owed/zero back at the end of the year as you can get.

[280plus]

Best you can do is claim zero during the year. Or go to work for yourself.

[Waitone]

Do a little tax planning and figure out your tax take for the year.  Take that figure and divide it by the number of pay periods.  The get a w-4 and your state's equivelent and "block" the amount on the document.  HR doesn't like blocking but they gotta do it.  Exemption calculations are biased to giving the goobermint an interest free loan.  Blocking puts the responsibility for taxes on you.  

Another advantage is if you get a buyout or get canned by your employer and you get a fat check, they can only take out the blocked amount.  I had a company buy out my contract which amounted to 10 months salary.  Because of my block I got hit with taxes on two weeks earnings, not 10 months.  When you are out of a job you need the money more than the goobermint.

[Telperion]

I believe withholding is required by law.  IIRC, even if you don't file a W-4, your employer is required to withhold as if you are single w/ 0 deduction.

After all, if your average family had to write a giant check to the fed.gov every year, they might get uppity about where their taxes are going.  Wouldn't want that.

Somewhat related question: for people who live off of investment income, how do they pay their taxes to avoid the penalty since there is no withholding on dividend, interest, and capital gains income?

[Sylvilagus Aquaticus]

Sure, you can  have zero taxes deducted from your wages.  For that matter, you may not have to pay taxes on your income whatsoever.

...wait for it....

Call your Congressmen and have them pass the frelling Fair Tax.  
Did anyone else pick up on Tom Delay mentioning it specifically as one of his short-term goals during the interview on Fox the day after he announced he was stepping down?

Regards,
Rabbit.

[peteinct]

I thought that tax liability accrued as you earned the money. I have had to pay estimated taxes becuase for 2 years I had to pay in over 1000 bucks on april 15.

The real reason for withholding is so that people don't fully realize how big their tax bills are. It was started in WW2 to enable to extract more money to pay for the war.
pete

[K Frame]

Anyone who doesn't realize how much money is being withheld from his paycheck is an idiot.

The same as people who celebrate at getting huge sums "back" at the end of the tax year.

[Ben]

Anyone who doesn't realize how much money is being withheld from his paycheck is an idiot.
The same as people who celebrate at getting huge sums "back" at the end of the tax year.

So, like, 70% of the (taxpaying) population.
One of the people at my work was ecstatic last week because the IRS was, "giving me a $3K refund!". It's one of my pet peeves so I explained about it not being a refund and called him a jackass. Probably not the smoothest move since it was my boss.

[mtnbkr]

Gotta love those folks.

Until Abby was born and we got the child tax credit, we were breaking even (less than $100 refund) on the Fed taxes.  I never adjusted for the credit since I knew we'd have the student loan paid off within a year or two of her birth, causing us to lose a deduction.  This was our last return with the student loan interest and we got back just over 1grand (most of that being the child tax credit).  Next year, without the student loan, we'll get back less.   I'm comfortable getting a modest "refund" because it acts as a buffer for those years when we don't donate enough or we have some sort of "surprise" income that we need to pay taxes on.

Chris

[InfidelSerf]

Yes you can.. in short it's called Self Employment.

The automatic withdrawl is THE primary evil of the current tax structure.

I am certain that if every W2 worker had to cut a check at the end of every year.
They would not only push for tax reform. But they would expect more from their government.


All we can do now is live under the slavery. And push for HR 25  www.fairtax.org

[Guest]

Could someone please explain "blocking" in specific detail? I understand the rest of the thread and know what percentage of tax liability must be paid and within what month or quarter perfectly well, but I am not certain whether I understand precisely what is meant by "blocking." Thanks.

[auschip]

Yes you can.. in short it's called Self Employment.

The automatic withdrawl is THE primary evil of the current tax structure.

I am certain that if every W2 worker had to cut a check at the end of every year.
They would not only push for tax reform. But they would expect more from their government.


All we can do now is live under the slavery. And push for HR 25  www.fairtax.org

So I went and looked at the fairtax, and I can't see how it is better then the current system.  In fact, it seems to discourage purchasing.  How is that good?

[Telperion]

Every tax discourages something.  I'm not sold on Fairtax either, but it would encourage savings and investment, and given that personal consumption is 70+% of GDP, and that 2005 ended with a negative personal savings rate, discouraging personal consumption would be healthy.  A nation that does not save does not grow.

[roo_ster]

Why fairtax.org?
1. Compliance costs are orders of magnitude less
2. Less intrusion into the financial affairs of citizens
3. Much more transparent

[K Frame]

"This was our last return with the student loan interest and we got back just over 1grand (most of that being the child tax credit)."

Woo hoo! Party at Mtnbkr's house!


I have my taxes set up so that I usually owe about double what I get back from Virginia.

[mtnbkr]

Woo hoo! Party at Mtnbkr's house!

Too late.  That money went to the last of our non-mortgage debt (until we bought the camry) and Mrs. Mtnbker's laptop.  

Chris

[Phantom Warrior]

Could someone please explain "blocking" in specific detail? I understand the rest of the thread and know what percentage of tax liability must be paid and within what month or quarter perfectly well, but I am not certain whether I understand precisely what is meant by "blocking." Thanks.

I also would like to hear more about blocking.  I don't mind doing some work, esp if it'll save me some money.

[Waitone]

Blocking is simply you doing tax planning for the current year.  You look into the future and see your income and deductions.  If you use either a CPA or tax planning software you can take last year's results and details and modify them by what you know is going to happen in the current year.  Let's say last year you had salary $X and deductions y and 2 kids.  This year you had salary $X+5%, deductions Y, and one more kid.  Plug that info into either your CPA or software and voila, you have a projected tax of (say) $12,000 federal for argumentation.  Since you get paid one a month, your monthly tax is projected to be $1,000 federal.  Scoot over to HR and get a W-4 and ignore all the calculations on the back and write "Block $1,000 per pay period."  Every month you will have deducted from your pay $1,000.

Blocking won't work if you're self-employed or have an irregular, unpredictable income flow.  If your income is regular and deductions stable, blocking is preferrable IMNSHO.  

I went to blocking when years ago when my IRS withholding calculations went berserk.  I ended up with a $1,200 refund even though I used the IRS calculations.  I figured I could use the $100 / month better than the IRS.

[K Frame]

"Too late.  That money went to the last of our non-mortgage debt (until we bought the camry) and Mrs. Mtnbker's laptop."

We can still have a party at your house.

Word of warning to everyone...

Mtnbkr's daughter hits.

[auschip]

Why fairtax.org?
1. Compliance costs are orders of magnitude less
2. Less intrusion into the financial affairs of citizens
3. Much more transparent

1.  Are they really?  It just seems like they are moved from the .Gov to businesses (who will need to increase prices to absorb the costs - which then leads to an increase in the tax paid).
2.  I can see the less intrusion, but imagine paying for a house then having to add almost 1/4 additional to the sales price.
3.  How is it more transparent?  Instead of being hidden in a paycheck, it's hidden in a salestax.

Believe me, I want to pay less in taxes.  I just want to make sure we don't go from one boondoggle to another.

[SpookyPistolero]

Anyone know of a good book to explain this kind of tax info / personal finance to retards like me? I'm just getting through student loan info, requiring lots of tax info, and am totally ignorant on most subjects, which is just pathetic. I'm sick of not understanding.

So, 'Money for Dummies'?

[roo_ster]

Why fairtax.org?
1. Compliance costs are orders of magnitude less
2. Less intrusion into the financial affairs of citizens
3. Much more transparent

1.  Are they really?  It just seems like they are moved from the .Gov to businesses (who will need to increase prices to absorb the costs - which then leads to an increase in the tax paid).
2.  I can see the less intrusion, but imagine paying for a house then having to add almost 1/4 additional to the sales price.
3.  How is it more transparent?  Instead of being hidden in a paycheck, it's hidden in a salestax.

Believe me, I want to pay less in taxes.  I just want to make sure we don't go from one boondoggle to another.

1. Most businesses in the country are already equipped to charge sales taxes, as most states have sales taxes.  So, most will have to add X% to the local sales taxes and send it to fed.gov.  Compare that to what we have to do to comply with income tax regulation.  There is a whole industry built up around it.  Collecting a sales tax is cake, by comparison.

Check this out:
http://www.taxfoundation.org/publications/show/1281.html

In 2005, taxpayers will pay roughly $1.2 trillion in federal income taxes. But Americas tax burden is more than just the amount of tax paid. It also includes the cost of complying with federal taxes, including tax planning, paperwork and other hassles caused by tax complexity.

...

In 2005 individuals, businesses and nonprofits will spend an estimated 6 billion hours complying with the federal income tax code, with an estimated compliance cost of over $265.1 billion. This amounts to imposing a 22-cent tax compliance surcharge for every dollar the income tax system collects.

A 22% tax compliance surcharge.  Maybe we won't need to have a 25% national sales tax.  Maybe we'll only really need an 18% rate.

2. I hear ya.  Do the math, however, & it is much more attractive:
http://fairtax.org/real_estate.html

3. More transparent, because you pay it each and every time you make a purchase.  You see it right there where you currently see the sales tax on your receipt.  If it goes up, you see it.  If some lobbyist gets an exclusion on their product/industry, you see it.

[Phantom Warrior]

Well, I punched up the tax calculator on the IRS website and took its advice to change my federal withholdings from zero exemptions to one exemption (what I claim on my taxes, me).  That should cut my refund amount down and correspondingly increase my take home pay.  I also punched up myPay and changed my state witholdings to "exempt" since MN doesn't tax federal active duty pay.  

We'll see how it turns out.  Thanks for the advice everyone.

[jefnvk]

Anyone who doesn't realize how much money is being withheld from his paycheck is an idiot.

The same as people who celebrate at getting huge sums "back" at the end of the tax year.

You know, when I first got a real job, I was not paying attention to and happy with the amount in the net pay section, as most 16 and 17 year olds are, but mad at how much I wasn't getting because of about 5 or 6 different government things I had to pay for.