Taxes- go exempt?

[MarylandMark]

Just wondering how many people do this or know a 'friend' that does?

Pay in about the same percentage as the year before and then go exempt. Rather owe them than the other way around. Obviously this question is for those that don't pay quarterly and so on.

USA Today is reporting more states delaying refunds for up to 5 months. 2008 4-6 states delayed refunds due to being broke- looks like more are going to do the same this year.

[hotjava66]

I have thought about the same thing this year, lets see what the consensus is. Have even considered it for any people I bring on during the summer. Pay them straight rate as subcontractors, send them a 1099 at the end of the year. No payroll hassle every week, do the same myself.

[Tommy Gun]

To avoid penalties I believe you are required to withold 90% of your required taxes or 110% of last years tax whichever is higher.

[Chris]

I have thought about the same thing this year, lets see what the consensus is. Have even considered it for any people I bring on during the summer. Pay them straight rate as subcontractors, send them a 1099 at the end of the year. No payroll hassle every week, do the same myself.

You need to investigate the IRS rules on independent contractors. They're very strict.

http://www.irs.gov/businesses/small/...=99921,00.html

The IRS wants their employment takes.

There are many tests for independent contractors. The major one being control of the employee. If you're telling them where to be, when to be there, specifically what to do and paying them by the hour, they're employees.

[hotjava66]

You need to investigate the IRS rules on independent contractors. They're very strict.

http://www.irs.gov/businesses/small/...=99921,00.html

The IRS wants their employment takes.

There are many tests for independent contractors. The major one being control of the employee. If you're telling them where to be, when to be there, specifically what to do and paying them by the hour, they're employees.

I know its probably impossible but we can all have a dream right?

[MarylandMark]

To avoid penalties I believe you are required to withold 90% of your required taxes or 110% of last years tax whichever is higher.

I thought it was some thing along those lines- if any thing just not to raise flags I:

Pay in about the same percentage as the year before and then go exempt.

Beginning of the year sucks- SS kicks back in, 401K contributions kick back in, taxes kick back in- but after a bit I switch from 0 to around 7 and run that until I'm up around what I paid in the year before and then go exempt.

[LadyDaze]

I suggest that you also refer to publication 15; Circular E. If the service recognizes an obvious change from last year to this year, you will eventually get busted and owe back taxes and penalties.

The circular E includes rules and regulations of Employer/Employee tax withholding. You can also refer to the Circular E withholding tables to calculate exactly what to claim to avoid refund or owing at the end of the filing year.


Here is an excerpt from the Circular E regarding exemptions

"Exemption from federal income tax withholding. Generally, an employee may claim exemption from federal income tax withholding because he or she had no income tax liability last year and expects none this year. See the Form W-4 instructions for more information. However, the wages are still subject to social security and Medicare taxes. See also Invalid Forms W-4 on page 18.

Invalid Forms W-4. Any unauthorized change or addition to Form W-4 makes it invalid. This includes taking out any language by which the employee certifies the form is correct. A Form W-4 is also invalid if, by the date an employee gives it to you, he or she indicates in any way it is false. An employee who submits a false Form W-4 may be subject to a $500 penalty. You may treat a Form W-4 as invalid if the employee wrote “exempt” on line 7 and also entered a number on line 5 or an amount on line 6. When you get an invalid Form W-4, do not use it to figure federal income tax withholding. Tell the employee it is invalid and ask for another one. If the employee does not give you a valid one, withhold taxes as if the employee was single and claiming no withholding allowances. However, if you have an earlier Form W-4 for this worker that is valid, withhold as you did before.

[Expensive Date]

If it does not work say hi to ben ask him to log on once in a while.