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I disagree with your answer to this post. As long as his 2001 withholding exceeds his 2000 tax liability, buznitz falls under the "safe harbor" provision. In his post, buznitz expects his 2000 liability to be $3,000. As long as he withholds or pays estimates of at least $3,000 in 2001, he can owe $1 million (or more) in taxes on April 15, 2002 and still not be liable for interest or penalties.

What you say is true with respect to the estimated tax penalty. However, what Chris says with respect to withholding allowances is also true. The W-4 is signed under penalty of perjury, and a fraudulent W-4 is subject to a separate $500 penalty, which the IRS can and does impose.

If an employee claims more than a certain number of withholding allowances (I can never remember whether it's 10 or 15--it's in Publication 15), the employer must send a copy of the W-4 to the IRS. The IRS can require the employee to substantiate the number of allowances claimed and can require the employer to withhold at the single rate with zero allowances if it's not satisfied with the employee's response.

Phil Marti
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