That's why my wife and I have the highest amount possible taken out of our paychecks.

we're still a few thousand away from owing money though ......

Our accountant said, buy a house or have a kid to avoid paying taxes next year.

we're currently putting bids on homes in our area.

@Skankingmike: I agree, I never bothered to change my withholding from 1 when I got married or had a kid. We owe every year anyway, may as well pay as much as we can now.

I was afraid of this. I have the highest amount withheld from my paycheck; I fall into the camp of appreciating a tax windfall instead of having a bit more each paycheck that I won't even notice and then owing.

I don't think I will owe next year, but I will certain be getting back less.

My wife and I have to have an extra amount withheld from each paycheck to avoid owing Uncle Sam next April.

I'd like I'm a rather intelligent individual but this new "stimulus" plan confuses the shit out of me.

@Spaceman Bill Leah: That's our thought, thank god my hours got cut at work too this way we wont' come close to owing money this year.

This is really confusing. If I'm filling out my W-2, what are the proper exemptions? 1 for if you're married, sure...what about the next line, with putting down 0 to prevent too much from being withheld. Should I have put 1 or 0? I have only filled out two of these forms in my life, and this was the first year I filed jointly, so I'm still new to taxes.

IRS regs require only 90% of the tax liability to be withheld via payroll deductions or voluntary payments.

Why give them YOUR $ early?

I pay something every year.

PS: Remember it is YOUR $ and THEY don't pay you interest for your excess contributions.

I read about this too. I decided to bump up my 401k contributions to compensate, rather than having the IRS withhold more money.

@Corporate-Shill: Amen to that. If you're worried about owing an extra $500 at the end of the year, just put $20 per paycheck in a savings account. The interest won't be a lot, but it's better than earning nothing.

@Skankingmike: This makes no sense to me. You WANT to give the IRS thousands of dollars a year in interest-free loans? Why, may I ask?

There goes our $8000 first time home buyers credit.

@pecan 3.14159265: If you put down 0, you'll most likely end up owing money to the IRS next April, assuming you take the standard deduction. You out down 1 if you can claim yourself as a dependent, 0 if somebody else is claiming you as a dependent, like if you were still living with your parents and under 18.

Although, IRS "Refund" = Free 0% loan to the government.
So, not too bad to "owe" the IRS.

@B: I think I'll probably have to revise my tax documents to count myself as a dependent then.

@B: I'm not an accountant, that's just my layman's interpretation of the law. I know a few years ago I put down zero, and ended up owing taxes.

I think the article has it backwards. The fear is that you will withhold TOO LITTLE, requiring you to pay money at the end of the year. If you withheld too much (as written), you would just get a refund.

I always maintained that if every person had to write a check to the IRS instead of the withholdings the income tax would be gone in mass protests. This might work until Americans won't get the large refund they normally get. It is nothing more than an accounting trick that makes people think they are making more money.

@B: Ahhh wait...nevermind. I forgot there was line B, which isn't what I was talking about. Line A requires you to fill out 1 for single or married or whatever, line B says you have to put down 1 if you are single and only have one job, have a non-working spouse, or a spouse who makes less than $1,500.

Line C is what I'm asking about. It says "enter 1 for your spouse, but you may choose to enter 0 if you are married and have either a working spouse or more than one job (entering 0 may help you avoid having too little tax withheld)"

I put 0 because after reading it five times, I still concluded that I'd rather not owe taxes. Nasty surprise.

@Corporate-Shill:

Is it actually a requirement in the US to have your employer withhold taxes, rather than not and having the option to just pay a lump sum at the end of the tax year?

Curious minds would like to know...

@johnva:

because things like this make it a fine line to know if you are withholding enough or too much (esp when you get into the relm of AMT).

After 2 years of having hefty tax bills i decided to just file myself as single because i am tired of it (granted any refund i get next year will go to paying off this years taxes).

@shepd: Yes, I believe it is a legal requirement (unless you're self-employed or an independent contractor). You have to pay taxes are they are accrued (for good reason...otherwise a lot of people would just opt to not pay in advance and then not be able to come up with the money at the end of the year).

@shepd:

yes it is. I think there is actually a fine if you owe too much at the end of the year (it's a high amount but you'd hit it if no taxes were withheld).

That's why self employed have to do quarterly taxes.

@Trai_Dep: And "owing the IRS" = interest free loan from the government to you.

@TEW: So your view is that Americans are too stupid to understand how much tax they're paying?

@TEW: I also think if the goverment had to pay interest to people that got a refund they would come up with a way of taking out exactly how much they should be taking out.

@harlock_JDS: Yeah, there's an IRS "penalty" for not paying enough via withholding and quarterly estimated tax payments. My wife got hit with it one year when she had an unexpectedly large amount of dividend income and ended up owing a lot more tax than she thought she would.

@harlock_JDS: I don't buy that as a real reason to overpay by thousands unless your tax situation is REALLY complicated. The IRS even has a calculator for helping you figure out what to set your withholding at (and there are numerous others on the web), and it accounts for AMT etc.

Much better to have to pay a modest, predictable amount. If you get a refund, that's because the government has been sitting on your money for 6-12 months, without paying you interest. If you have to pay, that's you sitting on the government's money for 6-12 months, without paying them interest! (Hopefully you invested it wisely!)

Ideally you want to end up having to pay the IRS just a few dollars at tax time. Then you know your keeping all the money you should throughout the year.

@johnva:

I think you read it a bit harsher than it was meant. I agree with him- if you actually had to write a check for $10,000 every year instead of having $416 deducted every pay check, it would be a lot more tangible.

The same thing happens with electricity- there was a study that showed americans reduced their consumption by an average of 15% when they were simply shown how much it actually cost them each day to leave the lights on, run the dryer, etc.

@harlock_JDS: They already have, but you have to set up your withholding correctly and keep it up to date because they have no way of knowing about all the things that might affect your total income and tax liability at the end of the year. For example, the IRS has no idea in advance whether you're going to buy a house, contribute to a traditional IRA, have a child, or get a bonus. But you can keep your tax withholding close to right on the money if you go in and update your W-4 whenever you have one of these events that changes your situation.

@Joe Reilly: I don't mean to be harsh, but that argument sounds like "math is hard" to me. But I will admit that it might be true of some people...I'm unusually emotionally dispassionate about my money.

This is why I try to make the least amount of money possible. Plus I'm a single income house...Poor me

@Joe Reilly: Yes, I also thought this was backwards. Is there something we're missing?

@darkjedi26: Exactly, I actually had to pay the IRS $250 this year, first time I ever owed, finally. I just waited for my $450 state tax refund to arrive before sending the IRS payment in. Hopefully it will be something similar to that this year.

@johnva: @harlock_JDS: In my imaginary Personal Finance People Should Know class (to be taught in schools!) this would be mentioned. Because of all the hubub about April 15, people grow up thinking that that's when you pay ALL your taxes. No one ever explains the real system, and I'm glad I never ended up in any trouble. Luckily, my employers were pretty on top of things.

@Gokuhouse: LOL, yeah we went from DINK to SINK (single income, numerous kids) a few years back and it has definitely helped the income tax situation, but hurt every other financial situation :(

@johnva: I hear this a lot, and I don't understand why it's such a big deal. It's like this: I know myself, and I know my habits, good and bad. I'm working on changing the bad ones, but I also have to make decisions that are appropriate FOR ME in the meantime.

If I have my employer take out an extra $10 every paycheck, I am not really going to feel that. I'm not going to struggle paying my bills because of it. But if that $10 goes back INTO my paycheck, I know myself well enough to know that I won't ever get around to putting it into savings.

When April 15th rolls around, I get a sizeable refund. A refund for $1500 is my house painted, or a new fridge, or a small vacation - an extra $10 in every paycheck is just lunch at Wendy's.

On the other hand, having to PAY the IRS even, say, $500 - that's going to be a strain on my budget, requiring me to either take it out of savings or figure out how to juggle the bills for a few months.

A few years ago, because of me being underinformed about self-employment taxes, I wound up owing over $2000... I wound up making monthly payments for a year and a bit.

I did the math years ago, when my father and I first had this argument, and calculated that at the interest rates going at that time I'd earn less than $8 in interest EVEN IF I did save, and not touch, that extra withholding. By comparison, he always had his employers withhold the "exact right" amount and would end up owing about $2000 every year (which is why I put "exact right" in quotation marks). It's always a struggle for them, and they're always stressed and upset about it for weeks.

It is MORE than worth it to me to let the IRS make a few pennies off of my dollars, in exchange for the peace of mind of knowing I'm not only not going to owe anything, but I'm going to get a refund check that I can DO something significant with.

It's what works FOR ME in the limits of my own knowledge of my situation and my probable behavior. Sure, I would benefit from better self-discipline and savings habits, but until I DO improve them, I have to work with what I have, and do what is going to make the most sense for me.

And all other things aside, with the shape our economy's in, it's gotta be patriotic to "give [them] interest-free loans."

Wow, imagine that. New tax laws are going to screw us. Why am I not stunned by this? Oh I know why; because it's no different than any other time.

We're probably going to fall into this... right now my fiancé and I are, legally, still single, and each being taxed at our previous, single rate. But come OCtober we'll be married, changing our withholding, and filing as married for 2009.

Ow, my brain.

@TinkishDelight: I like to think that I am too. Unfortunately reality has something entirely different to say about it. :P

I'm with you. @_@

@johnva:

well this year is a bit strange because basically any extra we pay (that goes into a refund next year) will in effect cover the taxes we owe from this year (because we will likely still be paying off this years bill next year so they will apply our 'rebate' to the amount we owe).

once we have the IRS paid off we'll calculate so we don't have to pay as much.

The article makes no sense: "The new payroll tax tables mean you could end up withholding too much without even knowing it and, though you're welcome to take that long-awaited trip up the Zambezi, you probably won't enjoy writing a check to the IRS come April 2010."

If you withhold too much you get a refund. If you withhold too little you have to pay taxes, and if it is above a certain amount ($1000 for most taxpayers) you will be charged an underpayment penalty.

It is not that difficult to calculate your proper w-2 entries. You can use the calculator at the IRS Website: [www.irs.gov]

@bibliophibian: Well, that's one thing if you need to do it to work with your own money psychology. I don't blame anyone who does it for that reason. I'm just a "by the numbers" type of guy.

I feel I've done it right when I either get a very small refund or end up owing a little. I have no desire to hand over money so it can be handed back.

@Etoiles: You often save money by getting married, so maybe not. It depends on what your incomes are, and what they are relative to each other.

@johnva:

Exactly! This is a bad idea.

"The new payroll tax tables mean you could end up withholding too much without even knowing it"

Do you mean "could end up withholding too little"?