We are hiring a nanny and witholding taxes. She is married and has two kids under age 18, but wants to take zero allowances for dependents. Why would she want to do this?
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Nanny Tax question
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Last: 5 yr ago by Prince_Ahmed
Perhaps her husband earns a significant salary and they are in a higher tax bracket.
She could also earn income from passive sources she has to pay taxes on. And instead of quarterly tax payments she wants the money withhold.
I know that there was a year or two that I sold investments, and I would increase my withholding so I didn't have to pay quarterly payments or owe taxes at year end.
I know that there was a year or two that I sold investments, and I would increase my withholding so I didn't have to pay quarterly payments or owe taxes at year end.
There are people that use this as a way to "save up" for a tax refund that they treat like a bonus when they get it.
This. They don't realize they're giving the government an interest-free loan.LostInLA07 said:
There are people that use this as a way to "save up" for a tax refund that they treat like a bonus when they get it.
Huell Babineaux said:This. They don't realize they're giving the government an interest-free loan.LostInLA07 said:
There are people that use this as a way to "save up" for a tax refund that they treat like a bonus when they get it.
Not always the case though. We have two kids. We have to claim zero plus take out more each month to avoid penalties.
I understand the math behind it being an "interest free loan" but that argument just doesn't make sense in the real world to me. Most people would not invest that fractional difference in withholding so they wouldn't earn interest on it regardless. In fact, most people would go straight and spend it this causing a problem at tax time when they don't have the extra for the payment. Instead they get a refund that allows them some flexibility to spend as they want on larger items. This obviously isn't the case for all but I would argue it fits the majority.
And even though I understand the numbers, I'd still refer a refund over a tax payment at the end of the year. More of a psychological thing and not having to physically write a check. Your going to pay what you have to pay one way or the other just would rather not see that money. Plus takes the headache out of worrying about quarterly payments and all of that.
And even though I understand the numbers, I'd still refer a refund over a tax payment at the end of the year. More of a psychological thing and not having to physically write a check. Your going to pay what you have to pay one way or the other just would rather not see that money. Plus takes the headache out of worrying about quarterly payments and all of that.
Exactly - my wife and I are the same. We already save money every month. If we get $200 more in our checking account every month we're going to spend it on menial stuff. Most would. If we get a check for $2,400 at the end of March we are traveling to our happy place in Mexico for 5 days.07&09Ag said:
I understand the math behind it being an "interest free loan" but that argument just doesn't make sense in the real world to me. Most people would not invest that fractional difference in withholding so they wouldn't earn interest on it regardless. In fact, most people would go straight and spend it this causing a problem at tax time when they don't have the extra for the payment. Instead they get a refund that allows them some flexibility to spend as they want on larger items. This obviously isn't the case for all but I would argue it fits the majority.
And even though I understand the numbers, I'd still refer a refund over a tax payment at the end of the year. More of a psychological thing and not having to physically write a check. Your going to pay what you have to pay one way or the other just would rather not see that money. Plus takes the headache out of worrying about quarterly payments and all of that.
Could we automatically put the $200 in savings every month? Sure, but it's a lot easier to spend and risk having to write a sizable check to the IRS.
Because that's not all the income she and her husband earn. The IRS even provides worksheets with the W4 to help taxpayers calculate the appropriate number of dependents when there is income from more than one source. It's rare that it would match her number of actual dependents. It's very likely that 0 is the appropriate number for the small amount of income you'll be paying her to nanny.WaltonBlanks08 said:
We are hiring a nanny and witholding taxes. She is married and has two kids under age 18, but wants to take zero allowances for dependents. Why would she want to do this?
But really, why do you care?
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