Submitted by jayseaz t3_11egnlm in personalfinance

I can't find a clear answer on this one so I thought I'd ask it here.

Let's say my income in 2022 was $100,000/yr and my federal tax liability was $14,768. What if I asked my employer to not withhold any federal income tax and instead threw it in a HYS? Then I would pay the entire $14,768 on April 15, 2023.

Is this doable? Would there be penalties because I did not pay the withholding during the year?



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t-poke t1_jadvv68 wrote

> Would there be penalties because I did not pay the withholding during the year?

Yes, there are under-withholding penalties.

The US tax system is pay-as-you-earn


jayseaz OP t1_jadwbj7 wrote

What are the penalties? Is it 0.5% per month, or 6% for the year?


t-poke t1_jadwf0a wrote

I have no idea. You can probably find them on the IRS's website.


Mysunsai t1_jadwwfo wrote

The underwitholding penalty is currently 7%, it varies semi-annually based on the federal short term rate.

If you routinely underpay, you will be subjected to backup withholding and the IRS will require your employer/bank/brokerage/etc. to withhold from all income irrespective of your instructions.


jayseaz OP t1_jadx6p7 wrote

Interesting, good to know. I have always claimed 0 over the years.


kylejack t1_jadxjba wrote

One thing you can legitimately do is adjust your withholding so you get either a small or no refund, which will put more money in your pocket earlier.


rbnhd_f t1_jae3q9x wrote

Where “can legitimately do” = “if you are doing it correctly”.


kylejack t1_jae3zkj wrote

Everything should always be done correctly and not incorrectly, that much is true.


rbnhd_f t1_jae6wbj wrote

Haha, exactly! I just wanted to make it clear that this is not a secret tax hack or anything, this is the normal thing that almost anyone would save some $$ by doing.


kylejack t1_jae7apr wrote

Considering how often it comes up here and how often people are confused by it, it may as well be a secret to be discovered.


rbnhd_f t1_jae869v wrote

No kidding. Tax season, there are so many posts like “how can I possibly owe money, I can’t believe it, I got a giant refund last year”.


wanttostayhidden t1_jadx4po wrote

Not only can you be hit with penalties, the IRS can contact your employer and force them to withhold taxes for you.


jayseaz OP t1_jadxmmy wrote

It looks like this is not just a bad idea, it is a terrible idea. Thank you! 😂


altmud t1_jadyjmu wrote

Yep, like most things like this, you're far from the first person to have thought of doing this. So, the IRS is prepared for this.


Knipfty t1_jae0v2e wrote

Imagine if everyone did this? The US govt would see any revenue until Dec every year.


shadow_chance t1_jadvyrh wrote

It's doable. It's not recommended do to penalties.


got_me_some_popcorn t1_jaeb0pa wrote

Yes, there are penalties for not paying throughout the year as required.