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Author: kimer Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: exempt definition question.... Date: 8/23/2000 10:24 AM
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Hi -

According to the IRS, you can claim exempt on your W4 if you meet the following (and I quote):

- Last year I had a right to a refund of ALL Federal income tax withheld because I had NO tax liability AND
- This year I expect a refund of ALL Federal income tax withheld because I expect to have NO tax liability

I meet both of that criteria, and I do "expect" to have no tax liability (that is to say, my "total tax" on line 56 of the 1040 should, barring winning the lottery or subtle math differences, be "0"). I have done extensive math on this.

My question is, if I end up come April with, say, $40 on line 56 as opposed to "0" (due say to taxed per diem that I might get between now and Dec. 31st), is it likely that the IRS will assess the $500 penalty?!? I'm not looking for an interest-free loan from the IRS here - I have just have done the math many times over and will be right at "0" liability. In fact, we're already going to get a $1,600+ refund because of taxes withheld that we had no control over.

And what does "expect" mean exactly?!?!...

Thanks!



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Author: hghcpa Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39014 of 121219
Subject: Re: exempt definition question.... Date: 8/23/2000 10:37 AM
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My question is, if I end up come April with, say, $40 on line 56 as opposed to "0" (due say to taxed per diem that I might get between now and Dec. 31st), is it likely that the IRS will assess the $500 penalty?!?
=========
As long as you file and pay by the due date of the return then no penalty or interest charges will apply.


pete

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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39022 of 121219
Subject: Re: exempt definition question.... Date: 8/23/2000 2:13 PM
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My question is, if I end up come April with, say, $40 on line 56 as opposed to "0" (due say to taxed per diem that I might get between now and Dec. 31st), is it likely that the IRS will assess the $500 penalty?!? I'm not looking for an interest-free loan from the IRS here - I have just have done the math many times over and will be right at "0" liability. In fact, we're already going to get a $1,600+ refund because of taxes withheld that we had no control over.

No, they won't assert the $500 fraudulent W-4 penalty if this happens. If they're going to challenge the exempt W-4, they'll do it when you file it with your employer, not when you file your return. Of course, if your 2000 total tax turned out to be more than zero, you wouldn't qualify for exemption from withholding in 2001. Also, keep in mind that the W-4 exemption expires December 31. You must file a new W-4 with your employer come January.

And what does "expect" mean exactly?!

According to Mr. Webster's second definition, "to look for with some confidence." Unless your psychic friend is very reliable, you can't know for sure as of now what your tax liability for the year will be. You could wind up with one of those genius grants that are taxable income. Thus, because all you're required to do is expect that your tax will be zero, if it turns out not to be, IRS doesn't come back and slap you for an incorrect expectation.

TMF ExRO
Phil Marti

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