Income Tax Withholding

[jlvkfyang]

A few questions

- Is there a online calculator to help calculate income tax withholdings, as well and benefits of certain 401k contributions.

-Is it possible to claim exempt status, have no taxes taken out, and then just pay out at the end of the year if needed???

[sweeps]

Is there a online calculator to help calculate income tax withholdings, as well and benefits of certain 401k contributions.

The IRS offers one. So does Kiplinger. In my experience, use them as a general guide, but take them with a grain of salt. The more complex your taxes are, the more "off" these calculators are.

Is it possible to claim exempt status, have no taxes taken out, and then just pay out at the end of the year if needed???

This is becoming a FAQ. The answer is you are expected to pay taxes throughout the year. That's either through employer withholding, or with quarterly estimated taxes if you're self-employed. If you underwithhold throughout the year, you may be fined even if you "settle up" at the end of the year.

There are some exceptions to this, and yes, some people can claim Exempt. But this is not typical.

[momof1in150]

PaycheckCity.com - Basic Calculators has some good calculators on it for personal use. If you click "Advanced Calculators" you will find the 401K calculator.

[MonkeyMama]

You can't claim exempt unless you paid no income taxes the prior year AND you expect to pay no income taxes this year.

Yes, this rules out most of the population with a paycheck.

Likewise, if you withhold no taxes, and pay your taxes on April 15th, you would clearly be penalized. (The penalty is calculated on your tax return).

Likewise, if you claimed exempt but paid in estimates, that would be pretty obvious too. Against the law.

[MonkeyMama]

I came across this article for another post and thought it was appropriate here.

Just an idea of some of the interest and penalties and legalities when you falsify a W-4.

Note, the current interest rates of 8% and the penalty rate of 0.5% per months adds up to an annual 14% "interest" on late payments. This is when interest rates are LOW.

How_to_avoid_underwithholding_and_its_penalties: Personal Finance News from Yahoo! Finance