Switching W4 from claiming 1 dependant to claiming EXEMPT

[Chloe062773]

What is the name of your state? FL

Hi I have a question. I work in sales and I am a straight commission person. No overtime, no salary, no sick or vacation time etc. I usually claim 1 for myself on my W4. However I was told by numerous fellow coworkers that when they get really high bonuses they switch their w4's from whatever they claim to EXEPMT too avoid getting killed on taxes. They say they never have to pay at the end of the year and do it only when checks will be really high.

I am getting married in November and trying to save up for the big day.My next two paychecks will total together about $18000 for the month of March. My question is, if I switch from "1" to EXEMPT for only one month (and then switch it back) is that illegal and will the IRS make me pay at the end of the year or will this be overlooked as long as it is not done anymore after this? I just want to have my wedding paid for tand this would do it! Thanks

 

[anteater]

I would suggest that you get hold of Form W-4 and read it closely.

Also, you might familiarize yourself with the term "perjury."

 

[Chloe062773]

I have read the w4 and it says that I was not in debt to pay any taxes last year and I am not expected to have to owe any at the end of this year. Which is the case. Your answer to my question has not been helpful. If you would try to explain instead of being so sarcastic. I'm asking first because I want to make sure I do not do anything that is illegal or wrong.

 

[anteater]

Try reading it again.

Does it say anything about not having to "owe any at the end of this year"?

Better yet, I will copy the language:


Last year I had a right to a refund of all Federal income tax withheld because I had no tax liability and,
This year I expect a refund of all Federal income tax withheld because I expect to have no tax liability.

 

[Some Random Guy]

Bonuses oftern get higher withholding rates because of the large size in a single pay period. Switching should not be a problem, so long as your payroll department doesn't mind and is given ample notice so they can do the checks properly.

Exempt isn't technically correct because I don't see how the IRS isn't owed any tax money on the $18,000 you will make this month. Perhaps you are confusing amount of taxes owed per year with your amount due on April 15th(amount owed - amount withheld). But the IRS won't care if your withholding for the month is short unless you owe a lot at the end of the year and then do that again next year.

 

[anteater]

And what happens when the employer sends the W-4 to the IRS, as they are required to do when someone claims to be "Exempt"?

 

[Beth3]

Directly from the W-4 form:

You cannot claim exemption from withholding if (a) your income exceeds $800 and includes more than $250 of unearned income (for example, interest and dividents) and (b) another person can claim you as a dependent on their tax return.

 

[tryingtoplease]

Per the Employers Guide "Generally you must send the IRS copies of certain Form W4's.....when the employee (a) claims MORE than 10 withholding allowances or (b) exemption."

You were not exempt from tax liability last year. You simply withheld more taxes than your liability. I think what you're attempting to do is get more money in your check and less to your withholding "account" with the IRS for only a couple of checks, right?

If you're sure, absolutely sure, that your withholding "account" can take the hit for those couple of checks, and sure, absolutely sure, that you won't end up owing at the end of the year, you can file a new W4 claiming more than the 1 you currently are, up to 9. 10 and over go to the IRS. But be sure, absolutely sure, that you immediately change it back. Letting it go on can have severe consequences come next April 15th.

 

[Beth3]

Good points, tryingtoplease. I've had employees turn in revised W-4's with the new year claiming exempt [from withholding.] In asking what their rational was (in order to help the employee avoid a tax nightmare the following year) I often heard "I claimed exempt because I didn't owe any taxes last year."

Er, yes you did. You just didn't owe any MORE taxes when you filed your return. When I explained that what they were trying to claim would result in NO taxes whatsoever being withheld from their paychecks, they were horrified. They simply hadn't understood what they were doing.

What Chloe is trying to do however is to stop all tax withholding on her larger bonus checks. Chloe, that may not even been legal. What you CAN do that however is to increase the exemptions you are claiming for those checks (say, from S-1 to S-9) and thereby lessen the undue taxes that will be withheld which happens because of the manner in which the payroll software computes withholding.

 

[tryingtoplease]

Okay, Chloe, I ran some rough numbers. Don't take these as the gospel truth tho when you're deciding. There are a number of variables which may not have been taken into consideration correctly by myself.

I 1st calculated payroll at $9000 semimonthly claiming Single, 1 exemption. Federal withholding was $2,360. 2nd, I calculated $9000 semimonthly claiming 9, resulting in $2,008 in Federal withholding. Using rough math, that comes to about $700 in extra actual cash you will get (for the entire $18,000 commish) that will not be withheld for the purpose of offsetting your annual tax debt. Did you get at least that back last year? That is assuming that you've already filed. And that you don't have any wild commission/wage fluctuations.

Before anyone jumps on me, I realize I've assumed a lot here. Here's how I came to some rough numbers.

You wrote "My next two paychecks will total together about $18000 for the month of March." so I assume you are paid bimonthly AND that you are saying your COMMISSION is $18K, not the sales you are basing your commission on.

Bottom line, as Beth3 (and others) have pointed out, is it is illegal for you to claim exempt (from the info you've posted so far). If this $700 or so helps right now for your wedding, you can think about changing your exemptions for a couple of checks. But if you only got a few hundred back last year (again assuming you've already filed), it could hurt you in the end. Just posting your pros and cons for you to decide. Good luck.

BTW Beth, yeah I love that when my employees hear something from a "friend" and then turn in a W4 with 99 exemptions.

 

[Chloe062773]

Thank yuo all so much for your posts. To answer a few questions. Last year I only got back $518. I have been claiming "1" on my W-4 all along and all of last year as well. I'm not the kind of person that claims anymore than that. What I was going to do was claim EXEMPT for one or two paychecks and then swith back to claiming "1" again. Reason being like I said, I wanted to have all of the $18000. Coworkers of mine saud they had done that for one or two paychecks and did not have any problems. They said at the end of the year they did not get much money back if any. I'm not worried about that. BUT, I also sdo not want to owe alot either. I've never had to pay any more to the govt. It's so hard to fugure out what I will make this year as well because my job is straight commission and this May it will be one year that I am working there. In this past year time I have switched from outside sales to inside so I can't even figure out the $$$ based on all the time up till now.

So from what I am gathering you are telling me that claiming "EXEMPT" could be illegal. There will no taxes what so ever drawn from these paychecks if I do that. At the end of the year I could end up owing and your advice is to just claim more dependants? Correct.....

Also the gov't will see me claiming exempt and $18000 is ALOT of money for one month so don't risk it? I donl;t know how the people at work get away with it. They must have good accountants!!!

Any other advice?

 

[Chloe062773]

One last thing I forgot to say. To answer tryingtoplease. I DO have pretty big fluctuations in my checks. It depends on what level bonus I fall into due to closing percentages etc. So that is why I'm not sure how my taxes will end up at the end of the year. The whole tax thing has always been confusing to me. That is why I wanted to just bank all of this big check and go back to claiming 1 right after getting paid.

Thanks

 

[pattytx]

So from what I am gathering you are telling me that claiming "EXEMPT" could be illegal.

If you don't qualify, then yes, it is illegal because it is perjury.

Have you read IRS Pub 919? http://www.irs.gov/pub/irs-pdf/p919.pdf

Or seen your tax preparer/accountant (if you have one)? The large preparers, such as H&R Block and Jackson-Hewitt will normally provide this service free of charge, if you have your returns prepared by them.

I've been in payroll for over 25 years, 11 in management, and I would never presume to advice an employee as to what to put on their W-4.

 

[Chloe062773]

Thanks Patty for your input. At my company which is a Fortune 500 company. The HR employees suggest to do it so I don't know what to believe. I mean I believe all of you but I think that they must know something that I don't, who knows. I'd rather be safe then sorry though!!!

 

[pattytx]

Chloe, my experience is that HR people, especially in a large company where HR positions are extremely specialized, know very little about payroll and, especially, payroll taxes. And they are really stupid to advise you. What happens if you rely on their advise, then end up owing a whole bunch of money when you file and try to hold them legally responsible? It's just a dumb thing for them to be doing. Payroll people usually know better!