By Chuck Sloan | Posted Jan. 14, 2010, 12:31 p.m.
No one likes to look at his or her paycheck and see the amount of money withheld from it in taxes by the government. However, the sad truth is that tax withholding is a good thing, not a bad thing. It makes sure the government keeps enough of your money so that you don't have a big tax bill at the end of the year. The alternative—finding out you have to pay hundreds or frequently thousands of dollars when filing your return, money you just don't have—is a huge shock that regularly brings some of our more inattentive clients to tears.
It sometimes takes a shock like that to wake you up to the truth. All too frequently, actors hear "secrets" from an "authority" on the set or in classes about how to keep more or all of their money. Such "helpful" advice can get you into big trouble. Unfortunately, these "experts" often prey on uninitiated beginners and background players, who need every penny of income they receive. That's probably why they seem to be the most willing to fall for such tricks and schemes.
One of those "secrets" is to write "exempt"—as in exempt from taxes—on your W-4 form, which you fill out each time you get a job. Please, for your own good, don't do that. If you claim exempt on a W-4, the employer won't withhold anything for your federal taxes, and usually that also goes for state and local taxes. (This doesn't apply to any Social Security, Medicare, or disability taxes that may have to be withheld, though. They're always withheld no matter what you claim.)
Legally, you are allowed to claim exempt only if you have the right to have all—not "some," but "all"—your taxes refunded. You only have that right if you had no tax liability for 2009 and you expect to have the same zero tax liability for 2010.
To qualify for that, a single unmarried taxpayer working under a
W-2 would have had to earn less than $9,350 in 2009 and expect to make less than that this year. Similarly, a married couple would have to earn less than $18,700 in W-2 wages to have a zero tax liability. Generally, it is very rare for anyone to be in one of these situations and expect to be in the same financial position the following year.
Admittedly, low-income earners need every penny of their income to live on. Sadly, they are the ones who find it hardest to pay any amount of taxes that might be due at the end of the year. When we have to tell clients in this predicament that they owe even as little as $300—because they had virtually nothing withheld, due to their machinations—they have few options for coming up with the money.
But had they allowed just $25 in withholding from their checks each month, there'd be no debt, and they'd have been able to get by somehow. Their only option now is a payment plan with the Internal Revenue Service (and perhaps the state as well) for last year's taxes, plus making sure that enough is withheld in the current year, so they don't end up with the same problem again. Paying $50 a month to the IRS, it's a real struggle for them to get by.
So fill out your W-4 correctly. Doing it wrong is not just foolish; it's illegal. The IRS has the right to assess criminal penalties for "willfully supplying false or fraudulent information" when you fill out a W-4 form. These penalties can include a fine of up to $1,000, imprisonment for up to one year, or both.
I urge you to make sure you never owe more in taxes than the amount you have already had withheld or have paid in estimated taxes by the end of the year. It doesn't make sense to try to do away with all your tax withholding, and it certainly doesn't make sense to break the law to do it.Source: www.backstage.com