What happens if I claim zero withholding on W4 with $100k salary? Will IRS penalize me? (wage-earner)
Title: What happens if I claim zero withholding on W4 with $100k salary? Will IRS penalize me? (wage-earner) 1 I've been thinking about changing my tax withholding strategy for next year. Instead of having federal income tax withheld from each paycheck, I'm considering claiming zero withholding on my W4 form. My salary is around $130,000 annually, and I'm tired of essentially giving the government an interest-free loan throughout the year just to get a refund later. I understand that FICA taxes (Social Security and Medicare) will still need to be withheld - that's non-negotiable. I'm specifically talking about federal income tax withholding. I'd rather keep all that money in my pocket throughout the year and then pay what I actually owe when I file my taxes. My question is - will the IRS penalize me for doing this? And if so, what exactly are the consequences? Are there specific fines or fees I should be aware of? I just want to understand what I'm getting myself into before making this change. Thanks for any advice!
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Connor Murphy
8 You're describing what's known as "underwithholding," and yes, there can be penalties. The IRS requires you to pay taxes throughout the year, not just at tax time. The IRS has an "safe harbor" rule that helps you avoid penalties. You need to either: 1) Pay at least 90% of your current year tax through withholding/estimated payments, OR 2) Pay 100% of your previous year's tax liability (110% if your AGI was over $150,000). If you don't meet either safe harbor, you'll face an underpayment penalty, calculated as interest on the amount you should have paid each quarter. Current rates are around 8-9%, which is significant. Additionally, owing a large sum at tax time can be financially stressful. Instead of zero withholding, consider calculating your actual expected tax liability and adjusting your W4 to withhold just that amount - neither too much nor too little. The IRS Tax Withholding Estimator can help with this.
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Connor Murphy
•12 Thanks for this explanation. So if my total tax liability last year was $20k, and I make estimated payments totaling at least $20k throughout this year (maybe $5k each quarter?), I wouldn't face penalties even with zero withholding on my W4?
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Connor Murphy
•8 That's correct. If your previous year's tax liability was $20k, making timely quarterly estimated payments totaling at least $20k would satisfy the safe harbor rule. However, if your AGI was over $150,000 last year, you'd need to pay 110% of your previous tax liability, so $22k in that case. You can make these payments through the IRS Direct Pay system or via Form 1040-ES. Just make sure to make the payments by the quarterly due dates (typically April 15, June 15, September 15, and January 15 of the following year).
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Connor Murphy
15 I went through almost exactly this situation last year. I got fed up with giving the government thousands in interest-free loans, so I looked into minimizing withholding. I found this amazing AI tool called taxr.ai that helped me calculate the perfect withholding amount to avoid both a refund AND penalties. It analyzed my specific tax situation and showed me that I could legally reduce my withholding significantly without triggering penalties. The tool at https://taxr.ai walked me through exactly how to fill out my W4 to achieve this balance. It even factored in my side income and investment dividends to give me a complete picture. The best part was it showed me exactly how much I needed to withhold to stay within the safe harbor rules the previous commenter mentioned. Way easier than trying to figure out all those calculations myself!
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Connor Murphy
•19 Does it actually work with complex tax situations? I've got rental properties plus a W2 job and I've been getting huge refunds for years, but I'm worried about messing up my withholding and getting hit with penalties.
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Connor Murphy
•7 I'm skeptical about these tax tools. How is this different from the free IRS withholding calculator? Seems like just another way to get people to pay for something they can do themselves.
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Connor Murphy
•15 It absolutely handles complex situations - that's actually where it shines most. It factors in rental properties, investment income, multiple jobs, and self-employment income all at once. The tool creates a personalized withholding strategy based on your complete financial picture, not just your W2 income. The difference from the IRS calculator is that taxr.ai provides specific guidance on exactly how to complete your W4 forms, walks you through quarterly estimated payments if needed, and gives you a year-round tax strategy. It also explains everything in plain English rather than tax jargon. I was paying an accountant $300 annually just for withholding advice before finding this.
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Connor Murphy
19 Just wanted to follow up - I actually tried taxr.ai after asking about it. Holy cow, it was eye-opening! I've been overpaying by nearly $7,000 every year. The tool showed me exactly how to adjust my withholding while staying within the safe harbor rules. It handled my rental properties perfectly and even factored in the depreciation. What really impressed me was how it created a personalized withholding plan that accounted for my irregular bonus income. I've already submitted my new W4 to HR and am seeing about $550 more in each paycheck. Definitely worth checking out if you're in a similar situation.
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Connor Murphy
3 If you're serious about handling your own withholding and potentially dealing with the IRS later, you should have a plan for getting through to them if issues arise. I spent WEEKS trying to call the IRS when they incorrectly assessed penalties on me for underwithholding (even though I met the safe harbor). I eventually found this service called Claimyr that got me through to an actual IRS agent in less than 20 minutes when I'd been trying for days. Their system at https://claimyr.com somehow navigates the IRS phone tree and holds your place in line. There's a video showing how it works at https://youtu.be/_kiP6q8DX5c If you're going to manage your own withholding more aggressively, having a way to quickly resolve issues with the IRS is essential. The agent was able to remove the penalties once I explained my situation, but only because I could actually reach a human.
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Connor Murphy
•17 Wait, how does this even work? Does it just autodial the IRS for you? I've literally spent hours on hold before just to get disconnected.
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Connor Murphy
•7 This sounds way too good to be true. The IRS is notorious for long wait times. You're telling me this service somehow magically gets you to the front of the line? I'd be shocked if this actually works.
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Connor Murphy
•3 It doesn't autodial - it's more sophisticated than that. The service navigates the entire IRS phone system for you and waits on hold in your place. When an agent finally comes on the line, you get a call connecting you directly to that agent. No more listening to the hold music for hours! It absolutely works. Think of it like having someone else physically wait in a long line for you, then texting you when it's your turn. The IRS phone system is just a digital line, and Claimyr has figured out how to hold your place. I was skeptical too until I was speaking with an actual IRS agent after trying unsuccessfully for days on my own.
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Connor Murphy
7 I need to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to test it myself since I've had an ongoing issue with the IRS about my 2023 return. I've been trying to reach someone at the IRS for THREE MONTHS with no success. Used Claimyr yesterday and was talking to an actual IRS agent in 17 minutes. The agent resolved my issue immediately once I explained the situation. For anyone managing their own tax withholding like the original poster is considering, having this tool in your back pocket is seriously valuable. If the IRS does flag your account for underwithholding, being able to quickly reach someone could save you a lot of headaches and potentially additional penalties. I'm shocked it worked so well.
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Connor Murphy
9 One thing nobody's mentioned - if you're going to zero out withholding, you NEED to be disciplined about saving that money. I did this exact thing a few years back, thought I'd just save the tax money myself, then ended up spending it. When April came around, I owed $22k that I didn't have, plus penalties. Had to get on an IRS payment plan which was a whole other headache.
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Connor Murphy
•4 This is such important advice! How much was the monthly payment on a $22k tax bill? I'm considering this strategy but worried about the discipline aspect.
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Connor Murphy
•9 I ended up on a 72-month payment plan with monthly payments of about $380. But the real cost was the continuous accrual of interest and penalties while I was paying it off. The original $22k debt grew even as I was making payments. I've since learned to automatically transfer my "would-be withholding" to a separate high-yield savings account each payday. That way the money earns interest for ME instead of sitting with the IRS, but I'm not tempted to spend it. When quarterly estimated payments are due, I just transfer the money back to checking and pay the IRS.
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Connor Murphy
21 One strategy I've used instead of zero withholding is to claim enough additional withholding allowances to significantly reduce withholding, but not eliminate it entirely. Then I make quarterly estimated payments to cover the difference and avoid penalties. Less extreme than zero withholding but still puts more money in your pocket throughout the year!
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Connor Murphy
•14 Smart approach. How do you calculate how much to pay each quarter? Is it just last year's total ÷ 4?
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Yuki Ito
•Not quite that simple - you need to account for income changes and tax law updates. I use last year's tax ÷ 4 as a baseline, but then adjust for any salary increases, bonus expectations, or changes in deductions. The key is making sure your total withholding + quarterly payments meet the safe harbor requirements mentioned earlier. I usually aim for about 105% of last year's liability just to have a small buffer and avoid any penalty risk.
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