You don’t claim dependents on a W-4. The form is entitled “Employee’s Withholding Allowance Certificate” and explicitly notes that the number of allowances claimed may be different from the number of exemptions or dependents you claim on your tax return.
Under IRS rules, it is perfectly appropriate to remit withholdings at some times and not others; it all depends on your personal tax situation. In fact, the IRS tells you that as your tax situation changes through the year, it is your right to change your withholdings by filing a new W-4. Publication 505 is quite clear that if too much is being or has been withheld, you can decrease the withholding by filing a new W-4 changing the number of allowances. (see p. 5 et seq.)
You claim exemptions on your 1040, and the number is *usually *(# of taypayers + # of dependents)*4050 in 2016. You *cannot *arbitrarily change this number.
You claim allowances (that people sometimes erroneously call exemptions) on your W4, and this number is based on your marital status, # of dependents, other deductions or credits, etc. If you do the worksheet to determine this and it gives you 6 allowances, you *can *arbitrarily change this to whatever you want, with the caveat that it can affect the amount you have to pay or receive at the end of the year, and penalties can occur if you choose poorly. Say you are the type of person who wants a huge refund at the expense of more withholding, you can change that number to 0 if you really, really, wanted to.
There is a box to just check “Exempt” on the W4, putting 99 instead seems overly complicated for little benefit.
For the OP, I would call the IRS hotline but it does sound like he may be on the hook for at least non-penalty related costs.
Keep in mind that any state tax authorities will have to be dealt with as well, and if the OP’s name means what I think it does, Multnomah County has its own tax.
That “99 exemptions” trick is commonly used by deadbeat parents, who are not supporting their kids, and are trying to avoid having any refund coming from the IRS (because state governments will seize it to cover their unpaid child support).
I suppose it’s possible there are some people who legitimately use this to stop tax withholding. But I expect that there are a lot more deadbeat parents using it.
I won’t defend him, but I will tell you that over a period of 10 years my salary got yanked around up and down because of transfers, promotions, etc, and even though I went to payroll to explain it, they couldn’t.
Eventually, I went to an accountant who went through my personnel and payroll records (for which I had meticulous pay stubs) and he figured it out. The memos for record I wrote that payroll had not explained the issue when I consulted them helped.
My employer repaid me in a lump sum, and I bought a new car.
Considering it was a $100-125 a pay period variation, it wasn’t all that obvious.
I don’t know how it works in other states, but in Kansas, this isn’t going to work very well, at least not anymore, because if you’re working, it is standard practice to have an income withholding order for current support and at least a bit towards any arrearage – the child support payment center will get their money before you ever see your paycheck. (If you’re not working, there’s no W-4 or withholdings anyway.)
I don’t see how a state could take someone’s federal tax return. States definitely will take your state refund if you owe them money from something else but don’t have the authority to garnish your wages over it, but there is no mechanism by which a state could seize a federal refund. The withholding trick will definitely work for both feds and the state if any refund would be seized and they can’t garnish wages - the W-4 is simply an instruction for your employers regarding how much to give the government from your pay, and the government can’t forcibly take more money from them without garnishing the wages. But it would be segregated by jurisdiction.
As to the actual case, it’s beyond my realm of current knowledge as to who would face penalties (perhaps both), but the employee definitely would have to pay the tax. I’ve heard that the IRS is fairly forgiving in making payment plans for people, and that’ll be doubly true if it wasn’t your own fault that you owed so much.
It’s a common practice among some deadbeat parents to switch to a different employer when your current employer begins the court-ordered witholding. And to continue switching employers as soon as they learn where you are working now. Do that regularly, and you can avoid the child support collection effort. And in certain industries, it’s pretty easy to change jobs.
Simple answer, the employee themselves is solely responsible to arrange to pay the owed Fed and State taxes.
yes the employer screwed up, but it the employed persons responsibility to diligently keep tabs
on their tax withholding throughout the year .
So unfortunately the guy has to pay the owed state federal medicare and FICA amounts.
As to what burden the employer holds here, aside from a scolding, i am afraid none financially on the employees part.
As far as claiming 99, all that matters is that the end of year filing is correct in the dependent amounts, and you have paid in at least the correct amount based on that.
Long as you are square with the house come april 15th, they aren’t going to quibble over what silliness you did with your W4 in between.
Hope the guy saved some of that extra cash he got all year
$9,000 is kind of an amount i would notice extra in my checks
There aren’t that many industries where you can get away with switching jobs every three to eight weeks (not months, weeks), and that’s about how long you’ve got in a lot of places now. Employers are required to report new hires within 20 days of offering them the job, and with all of the computerized matching and automated reporting, there’s not that long time lag anymore.
I’m sure some people do it, but I’d like a cite that it’s really still common practice or all that easy to get away with.
Agreed, would like to hear some real facts about how “common” it is for humans to do this. I work in an industry (entertainment) where people frequently jump from job to job, but a reliably new job every two months (at the outside) is a rarity. Especially jobs that are worth jumping around for. If you’re a 23 year old set production assistant deadbeat dad making $750 a week and are avoiding child support maybe this works, but I would not characterize that as common, even in LA.
When I was setting up the Japanese branch office of a US company, I was getting paid out of the US. They had me do the 99 allowance on the W-4 form in order to not have any US taxes taken out.
I was liable for Japanese taxes and never owed any US ones although you still have to file.
I was significantly overpaid once and didn’t notice immediately. HR miscalculated a raise and I got an additional $10,000.
This is the part I find hinky. The guy knows where to look on his paystub to find the code “M 99” or “M 4”, but doesn’t see that there are zero taxes withheld or understand what having zero taxes being withheld will mean? I suspect he knew all along that something was wrong, but figured if he mentioned it to HR, they would fix it, meaning his take-home pay would be reduced, so he decided to let it ride and “act natural” when the shit hit the fan.
The guy will have to pay, since he did receive the income and he does owe taxes on it. The IRS will probably not charge him for penalty if he explains how it happened. The employer will probably have to pay the penalty. It will mean he will probably have “double taxes” withheld for 2017. Let’s hope he didn’t blow all that “extra” money.
It isn’t how much you make that is important, it is how much money you have available to spend. It doesn’t matter if a person makes 25k or 100k, if that person has so little spendable money that they have to monkey with their withholdings to get some “extra” money for Christmas, they are sure as hell going to notice that they have continued to get that “extra” money every month.
No, I would posit that someone making a sizeable income but also deciding to push their money around like this for the holidays does not in fact pay a lot of attention to their savings at all. There’s a large number of people out there without basic financial sense and that includes having no budget and no idea of what they spend every month. That’s why so many Americans who “should” be doing ok are actually just swimming in debt. Because they don’t pay attention to the money coming in and going out, and hey, if you’re a little short this month, that’s what credit is for, right?
It’s not impossible that this guy is telling the truth, but this is way more likely.
Someone above mentioned that the guy would have to show “harm” to have the company pay for it. Is it possible that having to come up with a large amount of money on short notice could constitute harm?
Like, let’s assume that this really is an honest mistake. What if this guy doesn’t have $9000 and has to sell something at a loss, or take out a loan at high interest in order to come up with the money on short notice. Sure, he did owe that money all along, but his employers mistake has now caused harm to him. The harm is the interest and/or lost value due to needing the money suddenly. Could he reasonably expect the company to cover that cost?
There are no employer’s part of the discrepancy. The employer only owes its share of Social Security and Medicare taxes - which are independent of one’s withholding allowances.
I don’t know what the correct answer is as to whether the employer is on the hook for anything (I doubt it) but:
Can the fellow show that he submitted the W-4? If so, he might be able to use that to argue with the IRS and state authorities that he should not be subject to penalties for underwithholding
He can absolutely come to some kind of payment plan with the authorities so he doesn’t have to shell out the whole 9K at once. Yes, there’ll be interest, but the authorities really are NOT out to ruin people’s lives (um, usually…), they just want to see that the taxes are paid, and if he’s up-front about it they’ll work with him.
ETA: the guy’s an idiot. How could you not at least GLANCE at the paystub and fail to notice those big fat goose eggs where the tax withholding ought to be. He should consider the fees / interest as a relatively cheap life lesson.
You can request a delay in payment - interest accrues but no fee. You can also set up a flexible payment plan, and the cost is very modest, for all the flack that the IRS gets.
I’ll bet that 90% of people don’t even bother looking at their paycheck or have the capacity to understand what every line means. I look, and you do, but most don’t. Ignorance is still not an excuse as far as the law is concerned.
He says he saw that the exemptions had been set back to M4, so he more than glanced at it. Somehow he missed the zero withholding. Maybe that was on page 36 of the pay stub. I’m not buying it.