Is it legal to claim exemption even though you don’t qualify? I am thinking I would rather not have any taxes with-held and would rather have 15-25% of my paycheck routed into a savings account where I can earn interest on it and just pay what I owe at the end of the year.
I would like this to be true for state and federal. Is this legal or recommended? Do I just write ‘Exempt’ on my W-4 if I wish this?
Legal? I suppose. The IRS is not going to throw you in jail if you pay in one lump sum at the end of the year.
Recommended? Nope. The IRS is going to penalize you if you pay in one lump sum at the end of the year.
Bad idea.
The IRS will sooner or later figure it out and direct your employer to take proper withholdings.
(From http://www.gao.gov/htext/d0726.html)
The IRS has an online withholding calculator that can help you find the appropriate amount to have withheld from your paychecks.
I believe you are required to pay at least 90% of the tax owed in any year during that year either by withholding or estimated tax payments.
If you don’t, you will have to pay a penalty.
Not quite. It is true that if you just screw up- especially your first year of owing- things won’t be so bad. The IRS might even decide to reverse the Estimated Tax Penalty, if it is a one time thing and you got a refund last year.
But if you knowingly and wilfully file a W-4 falsely as “exempt” you could face a fine of $5000 and unlikely but possibly prison time.
You can get away with slight underwitholding and writing a modest check every year if your witholding is 90% or so of what you owe. Generally, if it is due to W-2 wages, and not SE income, you might even be able to get away with a little more. Say with “single +1” and you get a refund, “single +2” and you owe a small amount- then"single +3" you might be able to get away with. Of course, you’ll have to pay on 4-15, then.
But do not file a w-4 with Exempt or 99 witholding allowances or anything like that, if you have an actual tax liability. It will be BAD.