Claiming exempt

[charger2005]

What is the name of your state? Pa

I know a lot of people claim exempt on their federal returns fradulantley, just so they dont withhold taxes, so they can pay it at the end of the year. I am assuming that alot of people do this. So heres my question, what do they do with all of these people when/if they discover it? Make them pay penalties, interest? Only reason I'm asking this is becasue I was talking to some people that do this. And, if so many people do this, does the irs ever catch on to these people. I had an issue with claiming exempt once, but that was because I was underestimating income, but switched it back, but some people just blatently claim exempt, and I couldnt figure out how/why the irs doesnt catch on.

[LdiJ]

Originally Posted by charger2005

What is the name of your state? Pa

I know a lot of people claim exempt on their federal returns fradulantley, just so they dont withhold taxes, so they can pay it at the end of the year. I am assuming that alot of people do this. So heres my question, what do they do with all of these people when/if they discover it? Make them pay penalties, interest? Only reason I'm asking this is becasue I was talking to some people that do this.

They end up paying penalties for underwithholding. However, if they have loss carryforwards or other items available to them that ensure that they either won't owe taxes, or owe only a tiny amount, then its legitimate to claim exempt status.

[charger2005]

Dont they put these people in jail for this stuff, or is this stuff considered petty to them? I once heard a story about a guy that went his whole life without ever paying a penny to the irs becasue they never audited him. I never understood that.

[dallas702]

Are you talking about claiming more exemptions that they really have on their W-2s, and then reporting the correct number on their 1040. Or, declaring exemptions they don't have even when filing their 1040? Exemptions for dependants on the 1040 would have to include a SSN. Usually the IRS computers spot bogus or stolen SSN (unless you are sending the money into Mexico, apparently).

Have you searched IRS.GOV to see if there is a rule that says you cannot file extra exemptions on the W-2?

[charger2005]

I am referring to the box on the w2 that says exempt status all together.

[dallas702]

Well, a quick perusal of the IRS rules for claiming exemptions doesn't say much about limitations on the W-2, and people have been using higher-than-actual numbers for decades. I've never seen the IRS get too excited as long as you pay the proper amount at the end of the year. They have much bigger fish to fry.

[abezon]

Dependency exemptions are claimed on the tax return (1040). Withholding allowances are claimed so that something approximating the correct amount of $$ is withheld from your wages throughout the year. Fewer withholding allowances means more withholding & vice versa.

Penalties & interest are imposed when you owe more than $1,000 at the end of the year. If you know you've already paid in enough taxes to cover your 2005 tax bill, you could file a new W4 with your employer so that less tax is withheld. Technically you could not claim exempt status; as a practical matter, unless you owe over $1,000 at the end of the year, the IRS will neither know nor care.

[charger2005]

Ok, but heres my question on this issue. If you file your return and the box that says "amount withheld" says "0.00", but you pay all of whats owed, plus penalties, etc....will they hunt you down or will they just let it go? I know a guy thats done it forever and no one's ever said anything to him, lol. I guess the way the irs sees it as long as they get they're money in the end, they dont really care, but it ends up costing a ton in fees, penalties, etc.