Tax Withheld

[lwknives]

This may be a dumb place to ask this but...
Am I correct in understanding that you dont pay interest on tax so long as you pay it by the due date at the beginning of the year?

If you dont have your company take any taxes out of your pay check on your W-4 can you look at your taxes like an interest free loan that you have to pay back in a year? I would think you could wire that money to a savings account and earn interest on it. Is there something Im missing?

Im getting ready to change jobs and want to fill out my W-4 the most financially beneficial way.

 

[blastoff99]

Don't do that. If you pay nothing in for the whole year and then hit them with it all at once (while you had income the whole year), you will be subject to interest and penalties.

 

[BurningSkies]

I did have a job without withholding, and yes come April 15th, you have to pony up the full amount owed. And you can do it without penalty.

But...the real trick is being responsible enough to save so you can provide that 'lump sum' cash payment to the IRS and your state. It seems like a great idea to bank it, and get the interest, but even in a savings account with average interest rates, you're not minting real money and its probably worth what you do 'make' in those few months just to have it withheld properly.

 

[pedroims]

I would not do that, assuiming that you want this money so you can spend it then how you are planning to get the money to pay uncle Sam?

 

[Febs]

Penalty for underpayment of estimated tax: http://www.irs.gov/taxtopics/tc306.html

"If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax."

 

[elgecko]

I did it for a couple of years. If I remember correctly, there penalties to be paid.

 

[BurningSkies]

Penalty for underpayment of estimated tax: http://www.irs.gov/taxtopics/tc306.html

"If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax."

Things must have changed in the intervening years between when I last worked at a place that didn't withhold (2000) and now. As someone who didn't really make very much, I can say that I would remember paying a penalty.

 

[lwknives]

Penalty for underpayment of estimated tax: http://www.irs.gov/taxtopics/tc306.html

"If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax."

Thanks.

 

[lwknives]

I would not do that, assuiming that you want this money so you can spend it then how you are planning to get the money to pay uncle Sam?

I would use it to invest conservatively not to spend.