Claiming Tax Exempt?

[roatan]

I will be receiving a 10K stipend from my future employer in May 07 - to use for my expenses until I begin work in September 07.

The problem is that is will be taxed at around 40% - and I need all the money I can get to survive from may to sept with no job.

(From what I have been told, it is either taxed as a "bonus" or taxed as a bi-weekly paycheck - both end up withholding over $3500 in taxes. Even when I claim 15+ exemptions on a W-4, 10K "biweekly" indicates to the IRS I am making 260K a year, and they take out a TON)

Is there ANY way I can claim "tax exempt" status for this stipend on a W-4 right now, get the full 10K, and then before I start work in September, change my W-4 to my true withholding (2)? Is this illegal? Will I get caught/penalized by the IRS if I try to do this?

I did owe taxes last year, and do expect to owe some money in taxes for 2007 - so I don't meet the "criteria" on the IRS website. What will happen if I ignore it? Do they actually check?

I will be paying the IRS more than I owe this year when I start working in Sept, so I'm not trying to rip them off, I just can't wait until April 08 to get this stipend money returned to me!

Any other ideas?

Thanks in advance!

[Kram BergGold]

Two Ideas

1. ASK EMPLOYER TO GIVE YOU 2 $5,000 PAYMENTS, THIS WILL REDUCE WITHHOLDING.

2. Just ask them to withhold at a lower rate. Most employer's withhold 20% on bonuses.

[ChEAr$]

advice

Roatan, you need to remember the golden rule when it comes to working for somebody:

"He who has the gold, makes the rule." Just be thankful that your emloyer is willing
to put some money up front, for he must think a lot of your talent. You're lucky, so
just play by the rules.

[Koss]

Exempt?

Checking "exempt" could be construed as illegal, because it circumvents the withholding system. It could be interpreted as a form of tax evasion. It isn't something that any tax professional would ever recommend. It's meant primarily for high school students who know they won't have any tax liability.

With that being said, I know people who do it when their yearly bonus comes up. I've never heard about anyone having major problems because of it, except in rare cases where they forgot to change it back.

The IRS doesn't bring criminal charges over this sort of thing unless you get to the end of the year, and you made $45K, with no dependents, and had only $400 withheld, and you owe a lot of money, plus penalties and interest, and you fail to pay. That kind of scenario might be considered criminal tax evasion.

I'm not encouraging you to claim that you are exempt, because you aren't. But I'm not even sure the IRS knows about it. In general, the employer does not send Form W-4 to the IRS. The form is only used at the payroll office to calculate your withholding.

And even if they do send it to the IRS, if the "exempt" status is changed soon after, it could be interpreted as a clerical error--by the employee or by the employer.

Burton

[taxea]

Claiming Tax Exempt?

The taxing authorities expect you to "pay as you earn". The fact that you claim 15 exemptions and expect to owe already says that you are not following the withholding rules.
You may at any time receive a letter from the IRS advising you that they have sent a letter to your employer requiring that they withhold taxes at a single-zero rate. You will not be able to change this with the employer. Any more than 10 exemptions without deductions to back it up could generate this happening. taxea