my wife just got a part time job, and they are going to take taxes out of her paycheck, but they will be putting them into a savings account (which will gain interest) instead of sending them to the IRS. is this legal? would there be a penalty when we file next year for not having paid when they were suppose to?
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Why would they withhold and not pay it to the IRS? Either give it to your wife to save or send it straight to the IRS — something sounds funny there.
Anyway, with regard to penalties for underpaying income taxes, if you are not subject to withholding, you are required to estimate your year-end tax liability and make quarterly payments during the year. It is a pain in the neck in most self-employment situations, especially when you don’t know exactly what you will make during the year.
To make life a little easier there are two ways to avoid any late payment penalties. (these are the old rules, they may have changed, but not too much)
One is to make sure you pay 90% of the actual tax due at the end of the year through withholding AND estimated payments. (You still run into the “I don’t know what I’ll make” problem with this.)
The second is to make sure that through withholding AND credits and estimated payments you make, they total 100% of the tax you owed in the prior year (or 110% of the prior year’s tax if you’re a farmer or fisherman and your adjusted gross income on a joint return is $150,000 or more). This way there’s a set number to shoot for if you filed a prior year’s return. Just make sure all your withholding and estimates paid quarterly will come up to that number and you should be penalty free.
The form to get for the estimated payments is Form 1120-ES. You can get it online at http://www.irs.gov/pub/irs-pdf/f1040ese.… in the event I’ve mistranslated the gobbeldygook.
Revised: Ok actually it would be the company’s liability she gets a paycheck and it shows how much that they deducted from her check there for she is paying her taxes, and as far as penalty goes if the company fails to submit the money to the IRS then they will get the penalty charges.
I don’t believe so it’s kind of like being self-employed. You’ll just have to pay at the end of the year. when you file that return