Submitted by jayseaz t3_11egnlm in personalfinance
I can't find a clear answer on this one so I thought I'd ask it here.
Let's say my income in 2022 was $100,000/yr and my federal tax liability was $14,768. What if I asked my employer to not withhold any federal income tax and instead threw it in a HYS? Then I would pay the entire $14,768 on April 15, 2023.
Is this doable? Would there be penalties because I did not pay the withholding during the year?
> Would there be penalties because I did not pay the withholding during the year?
Yes, there are under-withholding penalties.
The US tax system is pay-as-you-earn
It's doable. It's not recommended do to penalties.
What are the penalties? Is it 0.5% per month, or 6% for the year?
I have no idea. You can probably find them on the IRS's website.
The underwitholding penalty is currently 7%, it varies semi-annually based on the federal short term rate.
If you routinely underpay, you will be subjected to backup withholding and the IRS will require your employer/bank/brokerage/etc. to withhold from all income irrespective of your instructions.
Not only can you be hit with penalties, the IRS can contact your employer and force them to withhold taxes for you.
Interesting, good to know. I have always claimed 0 over the years.
One thing you can legitimately do is adjust your withholding so you get either a small or no refund, which will put more money in your pocket earlier.
It looks like this is not just a bad idea, it is a terrible idea. Thank you! đ
Yep, like most things like this, you're far from the first person to have thought of doing this. So, the IRS is prepared for this.
Imagine if everyone did this? The US govt would see any revenue until Dec every year.
Where âcan legitimately doâ = âif you are doing it correctlyâ.
Everything should always be done correctly and not incorrectly, that much is true.
Haha, exactly! I just wanted to make it clear that this is not a secret tax hack or anything, this is the normal thing that almost anyone would save some $$ by doing.
Considering how often it comes up here and how often people are confused by it, it may as well be a secret to be discovered.
No kidding. Tax season, there are so many posts like âhow can I possibly owe money, I canât believe it, I got a giant refund last yearâ.
Yes, there are penalties for not paying throughout the year as required.
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