3 ms·

I'm not sure if you're describing something else, but tax withholding is voluntary. You can opt out and choose to pay your estimated taxes as a lump sum, but th

I'm not sure if you're describing something else, but tax withholding is voluntary. You can opt out and choose to pay your estimated taxes as a lump sum, but that also requires a level of budgeting that I'd argue most people don't have the financial literacy/self-control to do effectively.

ROTMetro 3y ago
You get penalties and an angry letter from the IRS if you are over a certain dollar amount and don't pay quarterlies.
TheNewsIsHere 3y ago
I did this as a 1099-contractor, since that’s about the only way to do it as a contractor. Paying estimated quarterly taxes four times a year wasn’t bad. I calculated my withholdings, remitted my tax payment through EFTPS, and was never surprised at tax time. I don’t think I ever got a refund or owed when I was doing it myself. I learned that many people who have never contracted before are shocked they have to do this, lost on how it works, and had (then) no good place to go for actionable advice. I found that surprising and kind of sad in a way. We could be doing so much better with financial literacy.
icouldntresist 3y ago
This brings something up which I don't understand about US tax code. Why can't I be taxed on income which I've already earned instead of having to estimate to within ~5% (IIRC) what I should earn? I'm sure there are reasons for this, but this seems broken.
- nulbyte 3y ago
  I think this is largely do to having a progressive and conplicated tax system. If work one job, earn salary, don't receive a variable bonus, and work the whole year at the same rate, it's easy enough to calculate. But, get a raise, take a pay cut, find a new job, start or stop a second job, or a third, or fourth, get paid hourly, get sick, take time off to care for a sick family member, have a kid, go back to school, graduate, get married, get divorced, get a mortgage, pay down your mortgage, ... There are all sorts of scenarios that could change your tax situation on both the federal and state level, making it difficult to calculate how much you would owe up front. What it really boils down to is our tax codes suck, and too many rich folk are keen on keeping it that way.
sidewndr46 3y ago
Please explain in detail the legal process that allows you to opt out of paying your payroll taxes as you go and instead pay after the tax year has completed.
- deleted 3y ago
  [deleted]
- bandyaboot 3y ago
  To dispense with the unnecessary snark, you can claim exemption from withholding, but only if you had no tax liability in the previous tax year and you expect the same to be true of the current tax year.
- mmcclure 3y ago
  An individual can't ever opt out of payroll taxes, that's an employer's responsibility. Income tax withholding, however, can be adjusted with a W-4. As others have mentioned, though, anyone making a reasonable income is going to have to pay estimated quarterly installments or get angry letters. Setting aside the 90% thing, to your original point, paying taxes is not a voluntary thing. There is, however, at least some flexibility in how you pay them. The flip side of this is: who cares, withholding is actually fine. For a vast majority of people, estimated withholdings is pretty close, and the few percentage points one might earn on a $1k refund in the meantime just isn't worth it. In my opinion, the best easy tax situation would be that at the end of the year we can skip (most of) the filing step and I either get a check or a bill.
  - mmcclure 3y ago
    Edit/delete window is past, so mea culpa for anyone else in this thread: sibling comment from bandyaboot is right on the limited path to exemption. I was mistaken on how much withholding flexibility there was for employees (aside from increasing it), and how much W-4 allowances could realistically (or, rather, legally) have an impact. https://www.irs.gov/publications/p505 https://www.irs.gov/publications/p505

ROTMetro 3y ago

You get penalties and an angry letter from the IRS if you are over a certain dollar amount and don't pay quarterlies.

TheNewsIsHere 3y ago

I did this as a 1099-contractor, since that’s about the only way to do it as a contractor. Paying estimated quarterly taxes four times a year wasn’t bad. I calculated my withholdings, remitted my tax payment through EFTPS, and was never surprised at tax time. I don’t think I ever got a refund or owed when I was doing it myself. I learned that many people who have never contracted before are shocked they have to do this, lost on how it works, and had (then) no good place to go for actionable advice. I found that surprising and kind of sad in a way. We could be doing so much better with financial literacy.

icouldntresist 3y ago

This brings something up which I don't understand about US tax code. Why can't I be taxed on income which I've already earned instead of having to estimate to within ~5% (IIRC) what I should earn? I'm sure there are reasons for this, but this seems broken.

nulbyte 3y ago
I think this is largely do to having a progressive and conplicated tax system. If work one job, earn salary, don't receive a variable bonus, and work the whole year at the same rate, it's easy enough to calculate. But, get a raise, take a pay cut, find a new job, start or stop a second job, or a third, or fourth, get paid hourly, get sick, take time off to care for a sick family member, have a kid, go back to school, graduate, get married, get divorced, get a mortgage, pay down your mortgage, ... There are all sorts of scenarios that could change your tax situation on both the federal and state level, making it difficult to calculate how much you would owe up front. What it really boils down to is our tax codes suck, and too many rich folk are keen on keeping it that way.

sidewndr46 3y ago

Please explain in detail the legal process that allows you to opt out of paying your payroll taxes as you go and instead pay after the tax year has completed.

deleted 3y ago
[deleted]
bandyaboot 3y ago
To dispense with the unnecessary snark, you can claim exemption from withholding, but only if you had no tax liability in the previous tax year and you expect the same to be true of the current tax year.
mmcclure 3y ago
An individual can't ever opt out of payroll taxes, that's an employer's responsibility. Income tax withholding, however, can be adjusted with a W-4. As others have mentioned, though, anyone making a reasonable income is going to have to pay estimated quarterly installments or get angry letters. Setting aside the 90% thing, to your original point, paying taxes is not a voluntary thing. There is, however, at least some flexibility in how you pay them. The flip side of this is: who cares, withholding is actually fine. For a vast majority of people, estimated withholdings is pretty close, and the few percentage points one might earn on a $1k refund in the meantime just isn't worth it. In my opinion, the best easy tax situation would be that at the end of the year we can skip (most of) the filing step and I either get a check or a bill.
- mmcclure 3y ago
  Edit/delete window is past, so mea culpa for anyone else in this thread: sibling comment from bandyaboot is right on the limited path to exemption. I was mistaken on how much withholding flexibility there was for employees (aside from increasing it), and how much W-4 allowances could realistically (or, rather, legally) have an impact. https://www.irs.gov/publications/p505 https://www.irs.gov/publications/p505