[MenhirMike]

Oh yes, that's another fun one! Your yearly tax return should be as close to 0 as possible, otherwise you're either over- or under-withholding. Then again, I met some people that use it as a kind of piggy bank because they wouldn't be disciplined enough to save up for bigger purchases otherwise and... well, I can't even, but if it works for them, there are worse things to spend money on.

[demondemidi]

I have income from multiple sources and they are not aware of each other. For example, they will all keep paying social security even when I’ve exceeded the max deduction. It is far too complicated to correct the finance departments of multiple companies. I just reconcile it all at the end of the year and get a refund. Got a better strategy I can use?

[dcow]

Woah, it’s okay to have different tax situations. I started a business one year and got a pretty big refund. But we’re not out there bragging about how we get big refunds every year like it’s some goal to aim for and accomplishment to be proud of if achieved. That’s the mentality people are criticizing.

[lcnPylGDnU4H9OF]

It sounds like you’re not one of the people they met who use it like a piggy bank. From my perspective, they’re just describing the habits of people who are used to not having any money: gotta spend this windfall quick because money doesn’t last long. It’s irrational and ultimately harmful but it’s borne from the practice of spending all of your money every month on non-trivial things and still being required to increase debt in order to stay in your apartment, e.g., credit card spending.

[sfink]

It's not necessarily irrational. For example, for some people if they ever have any extra money, someone else will immediately spend it for them. If the earner wants to make a larger purchase, perhaps something that will cost short term but pay off in the long term, they need some mechanism to save, outside of the regular controls that apply to daily life.

You may think this situation is still irrational, that the other person is being irrational. But again, there are many life situations out there. Perhaps they have lived in situations where they had to fight for what they needed. Perhaps they lived with an earner who would spend their money on drugs if it wasn't taken away, and yet if the non-earner saved it up themselves, the earner would find it and spend it.

The supposedly rational thing may depend on everyone around you to also be rational, and everyone around them, etc. And given that we are human, and humans are not fully rational...

[positr0n]

If your separate income streams are pretty predictable and so is the overwitholding, and if you care enough: you can put a negative number in the "extra witholding" box on your W-4.

I wouldn't say this is a better strategy, but you can definitely min/max this even if your income is not stable by extrapolating out your expected income and expected witholding a few times a year and adjusting your W-4 based on your calculations.

[lupire]

Wow I wouldn't trust that. I'd add extra exemptions plus a positive withholding if needed.

[loeg]

You can file a W-4 with exemptions and avoid overwithholding! This is a fixable problem.

[demondemidi]

How do I use a w4 to fix the social security problem without incurring underpayment of state and federal? Exemptions apply to all the taxes, no?

[lupire]

Not sure about state, but you don't pay Federal Income and FICA separately. They are just numbers that get added together. You just pay money, and the IRS splits it up after they collect. If you "overpay" Income by $1000 and "underpay" FICA by a $1000, you're done, no problem.

[loeg]

https://www.irs.gov/forms-pubs/about-form-w-4

Fill it out correctly and your employers will do the right thing.

[dpkirchner]

I think the W-4 only applies to federal income tax. There's no field that instructs employers how much to pay in FICA (their share and yours). At best you can reduce withholdings to account for the excess FICA payments.

[loeg]

It's all total tax burden. Dollars are fungible.

[phonon]

FICA cap is per employer, not total. Is that what you're referring to?

[sgerenser]

FICA cap is not per employer. Well, it is from a withholding perspective (only because it would be impractical to make employers monitor withholding outside their control), but once you do your taxes for that year, you’ll get everything you paid in over the cap refunded.

[phonon]

Right, but employers aren't allowed to coordinate to calculate whether the hit the cap together or not. They don't have that discretion. See

https://www.ecfr.gov/current/title-26/part-31#p-31.3121(a)(1...

[dcow]

By the interest free loan logic, you should have your employer withhold zero and then you put your taxes in a high yield savings account and pay them all as late as possible.

[xur17]

The IRS already thought of this - they charge you interest on the money you owed them (with some exceptions, like waiving it the first year it happens, only charging you if you withheld less than last year, etc).

[sgerenser]

The interest rate is also much higher than you can earn on anything risk free (8% right now) plus there’s penalties on top.

[MenhirMike]

Yeah, it sucks that the IRS is such a buzz-kill here, with 4-5% HYSA's, it would be nice to just let all the taxes sit there and pay one lump sum in April.

[xur17]

I owed a decent chunk more one year due to investments I sold, and left the money in tbills since I knew I was withholding at least as much as the previous year.

[dcow]

Not sure I understand. Taxes are due in April. You don’t get charged a year of interest on the amount you own when filing…

[xur17]

https://www.irs.gov/payments/underpayment-of-estimated-tax-b...

[tpmoney]

You owe taxes all year round. What you're doing in April is settling up and filing for the year. If you run your own business, you're required to pay a lump estimated taxes 3 times a year in addition to your annual filings. If you're too short, you owe and you owe interest. The IRS has a safe haven rule where if you pay 90% of what you owed this year, or at least 100% of what you owed last year, they won't penalize you. It's actually one of the reasons I personally do over withhold. I do some contract work on the side, and rather than calculating and sending in estimated taxes every quarter, I just have my regular job send in about 25% of the contracting income I expect to make. On years when I did as much contract work as I expected, I basically get nothing back or I might owe $200. On years where I don't, sure I gave the government an interest free loan but I also didn't have to think about my taxes for the whole year.

[bombcar]

Whenever these things are talked about in percentages it is worth bringing it down to dollars to make sure the effort is worth it - the average “interest” on a return is probably about $100 (4K return/2 * 5% - tax).

$100 isn’t nothing but it’s not everything either.

[YZF]

If you get a refund it means you overpaid your taxes. The amount you've overpaid can be considered a zero interest loan to the government. If you hadn't overpaid your taxes you could have invested that money.