General Question

Ltryptophan's avatar

Am I allowed to forego paying taxes until the end of the year if I have a normal paycheck?

Asked by Ltryptophan (9109 points ) October 13th, 2010

I get a normal paycheck and they take out taxes for me. That makes it easy at the end of the year to file taxes with my W2, and usually I get a small refund.

But I would rather take care of that tax situation on my own and keep that money all year and pay my tax bill during tax season. Is this legal, and if so how do I go about approaching my payroll people about changing this without them having a mental break down?

Observing members: 0 Composing members: 0

23 Answers

Tropical_Willie's avatar

You can do it, BUT you’ll likely will receive a penalty and will have to make quarterly payments in excess of your estimated tax bill after next year.

mrlaconic's avatar

It is legal and all you should have to do is increase the number of withholdings on your W4. Just understand (coming from someone who does what you do) that your tax bill isn’t going to be chump change. Based on what I make a year my taxes due at the end of the year is just over 4000.00 dollars.

Ltryptophan's avatar

Why a penalty Tropical Willie? Can I avoid it?

@mrlaconic I am not going to just wait till then to put the money aside… So it shouldn’t be too bad right…

Will this change some tax status???

CyanoticWasp's avatar

If you get a copy of a W4 form (your employer has these, and it’s a simple one-page form that you filled out and signed when you started your employment) and this time read it before filling it out, it will give you some suggestions on ways to minimize your withholding (legally) so that at the end of the year your refund will be smaller OR you may owe a small amount. Without penalty.

For me, an ideal tax return is one that I prepare and mail in mid-April with a check for $100 or less.

Ltryptophan's avatar

@CyanoticWasp yeah, but here’s the deal. If you were to take all the money you put away for taxes and put it in even the simplest interest bearing account that would make you a few bucks at least, or you could put it into some other minute risk investment.

If you made $20…at least you made those $20.

It isn’t for everyone. I imagine it would be too tempting for some if trouble arose, but I really don’t have that sort of problem.

grumpyfish's avatar

@Ltryptophan Penalty applies only if you owe more than a certain amount (memory says $1000)—that is, if you earned enough in the year to owe $1k or more, you either have to do witholding, or pay your taxes quarterly.

Here you go: http://www.irs.gov/publications/p505/ch04.html#en_US_publink1000207499

The math is a bit complicated, but it’s cheaper to make sure you pay the taxes than to try to gain a safe income from keeping it. .

Austinlad's avatar

My only experience with this—but applicable experience—is that I when I was freelancing, I always intended to put the money aside but never did. Boy, did_that_ get me in hock with Uncle. And even if you’ve got the self-discipline to do, the few, very few bucks interest to be made isn’ enough, in my opinion, to justify handling your own taxes. I prefer to pay as I go.

mrlaconic's avatar

@Ltryptophan I second what @Austinlad said… it’s hard to not spend the money.. and in order to get any gain you would be looking at from an investment, you would want to use a bank CD since it’s the only type of account that has a guaranteed interest rate when you open it. Problem with CD’s is that they usually want all the money up front and there are bank penalties for changing your account.

cazzie's avatar

When I was in NZ doing payroll and taxes, the employer had a duty, by law, to collect the tax and send it it. (it’s called PAYE short for Pay As You Earn) If the employee wanted to change his status, the employee had to apply to the tax department and be deemed a ‘Contractor’ and file his tax under a different system, often with quarterly payment made due based on last years income. (this worked both ways… it was proper prepayment and if the tax department took too much they would have to pay the money back WITH INTEREST.. which was kinda cool.)

I saw clients who thought they could just file and pay tax at the end of the year as contractors and more than half got themselves in the poo over it. They would end up paying taxes with credit card advances, bank overdrafts… expensive credit lines, but cheaper than the penalties that would accumulate. Silly really.

If you are that disciplined perhaps there is a way to safely do it if it’s legal in the US.

Ltryptophan's avatar

@cazzie I think its worth discussing, at least.

Tropical_Willie's avatar

@Ltryptophan The operative words were “keep that money all year”. Uncle smoke will not let you play that way. The penalty will be applied and YOU will be forced to pay on a quarterly basis.

The other repercussion is audits may occur for years with different reasons each year.

Ltryptophan's avatar

Well someone is keeping that money, at least quarterly. I doubt my employer sends in my taxes every pay period. So even if my employer is not making money on it, a bank is. That is my money until it gets to its new rightful owner. If money is made on it in the meantime that should be my money too.

Tropical_Willie's avatar

@Ltryptophan You can make money on it, Uncle Smoke will make MORE when he finally collects. I speak from the second tier, my father-in-law had not withheld a minimum amount to cover the withhold required. Next year after penalties and having to pay quarterly ( on top of withheld amounts ) Uncle Smoke made it painful.

cazzie's avatar

Yeah… @Ltryptophan that is a point. We did wages fortnightly, and sent in PAYE monthly. Death and taxes. Employers have to provide the service of tax collection the government (and in the US, it involves several layers of government) and they are not paid for this. I don’t know about time lines involving collection and payment, but I don’t think I’d begrudge my employer 2 weeks of interest on my withholding tax.

Ltryptophan's avatar

eh, 2 weeks interest on my money is not much. 2 weeks interest on over 50,000 employees…cough cough…

cazzie's avatar

Did you know that US employers have to pay a ‘retraining’ tax based on the amount of salary and wages they pay? If a company has 50,000 employees, that’s a hell of a whack of money.

grumpyfish's avatar

@cazzie The retraining tax is pretty minimal, compared to other things: “The U.S. also has a tax to pay for retraining of displaced workers, but it is only 0.1% of the first $7,000 of income, and it is assessed only on employers.”—That’s $7 per employee per year.

cazzie's avatar

Oh.. I read that wrong… I thought it was .1% after the first $7,000. oops.

grumpyfish's avatar

@cazzie Yeah 0.1% after $7k would be painful to a large org.

llewis's avatar

@Ltryptophan – actually, your employer probably IS sending in the money every pay period for your withholding plus their share of your social security. Either that, or they will get fined. It’s usually best to have withholding taken out. If you want to make it as low as you can, that’s one thing, but like @grumpyfish said, if you end up owing $1000 or more you may have to pay a penalty. The taxes are due as the income is earned, not on April 15.

augustlan's avatar

I did payroll for years, and we were required to send the tax money to the government every pay period. Just adjust your withholding to come out even (as closely as you can) at the end of the year. That’s by far the safest thing to do.

augustlan's avatar

[mod says] This is our Question of the Day!

Answer this question

Login

or

Join

to answer.

This question is in the General Section. Responses must be helpful and on-topic.

Your answer will be saved while you login or join.

Have a question? Ask Fluther!

What do you know more about?
or
Knowledge Networking @ Fluther