OT: CT Income Tax Withholding

[Kmba2Rmemba]

Name a more exciting topic, I’ll wait...


All jokes aside, does anyone have experience underwithholding CT state income tax from paychecks? I’m contemplating it and understand that there is an interest charged for underpayment.

Very quick summary is that I’m essentially getting taxed double for social security this year (was able to hit the annual limit at my prior job but recently started with a new company and the payroll department can’t corroborate that I’ve already hit the limit, thus SS is again being taken out from my pay) and would like to offset with lower state tax withholdings. Would then use the hefty federal return to pay for the CT state tax deficiency + interest.

 

[Ant3411]

That’s a little tricky to navigate. Best bet might just be to get a refund next year due to overpaid social security wages. Sucks now but you’ll be happy when you file your tax return. @EDouble any insight here?

 

[polycom]

You want to pay interest to the state of CT? Because you are getting a large refund from fed? Seems like a bad use of money... you are basically losing twice. Once because you are giving the fed gov a free loan, second because you are giving away money owe to you to the state in interest... seems like a bad plan.

 

[Kmba2Rmemba]

You want to pay interest to the state of CT? Because you are getting a large refund from fed? Seems like a bad use of money... you are basically losing twice. Once because you are giving the fed gov a free loan, second because you are giving away money owe to you to the state in interest... seems like a bad plan.

May not have been totally clear in my post. I’m contemplating reducing the CT income tax that gets taken out of each paycheck, thus yielding a higher take home amount. Knowing that I have a large federal refund coming (due to double pay of social security), I would use that refund to pay taxes owing to CT. Hoping it’s a wash. The key then becomes - would I rather have more take home now and pay CT interest on the underwithheld amounts (1% per month) or have less take home but no interest liability in the future. Thinking I can easily beat 1% in the market so I’m leaning towards the former.

Happy to field your thoughts if I’m overlooking something obvious

 

[polycom]

May not have been totally clear in my post. I’m contemplating reducing the CT income tax that gets taken out of each paycheck, thus yielding a higher take home amount. Knowing that I have a large federal refund coming (due to double pay of social security), I would use that refund to pay taxes owing to CT. Hoping it’s a wash. The key then becomes - would I rather have more take home now and pay CT interest on the underwithheld amounts (1% per month) or have less take home but no interest liability in the future. Thinking I can easily beat 1% in the market so I’m leaning towards the former.

Happy to field your thoughts if I’m overlooking something obvious

Basically taking a loan out from the CT government at 1% every month in hopes to beat the market over the same time. You say you are going to get a large refund from the fed but who cares... why does that factor into your calculation? The fed isn't giving you extra money they are giving you that is owed to you. I understand your point but many people have blown up their lives getting a bank loan loan to invest in the stock market because they think they can beat the market.

 

[Kmba2Rmemba]

You say you are going to get a large refund from the fed but who cares... why does that factor into your calculation?

I would reduce my CT income tax withholdings by an amount equal to that which I’m paying in social security tax (all of which should come back to me). It’s a wash in that regard. 1% interest on the overdue CT income tax results in about $700 by February of next year (when I’d pay). I’m confident that I can grow my money by more than $700 over the course of 8 months, but that amount doesn’t scare me or risk blowing up my life. Think it’s a worthwhile move to make if possible, no?

 

[polycom]

I would reduce my CT income tax withholdings by an amount equal to that which I’m paying in social security tax (all of which should come back to me). It’s a wash in that regard. 1% interest on the overdue CT income tax results in about $700 by February of next year (when I’d pay). I’m confident that I can grow my money by more than $700 over the course of 8 months, but that amount doesn’t scare me or risk blowing up my life. Think it’s a worthwhile move to make if possible, no?

$700 over the course of a year isn't a lot of money so do as you wish but taking a loan to make an investment in the stock market isn't regularly advised.

 

[willie99]

I would reduce federal income tax withholding in your case. Still take home more, same net tax result next year, and no underpayment of estimated tax penalties

 

[ecasadoSBU]

Name a more exciting topic, I’ll wait...


All jokes aside, does anyone have experience underwithholding CT state income tax from paychecks? I’m contemplating it and understand that there is an interest charged for underpayment.

Very quick summary is that I’m essentially getting taxed double for social security this year (was able to hit the annual limit at my prior job but recently started with a new company and the payroll department can’t corroborate that I’ve already hit the limit, thus SS is again being taken out from my pay) and would like to offset with lower state tax withholdings. Would then use the hefty federal return to pay for the CT state tax deficiency + interest.

For what?

(A) Do you live life so paycheck to paycheck that you need that cash now as opposed to next February and are willing to even pay interest as penalty on it on your own money just to get it now. Do you just want to blow the money?

or

(B) are you trying to use that cash to make an investment? This would only make sense if the money you get now you immediately invest it and get higher returns than the interest you are paying to the CT government at the end of the year. Otherwise, not worth the loss.

---->

I get it is annoying that the government gets to sit on your money for almost a year while they enjoy the benefits of TVM . But unless (B) is true then don't carry out the plan because its a bad idea. If (A) is true then STOP and leave it alone and save yourself from your ownself being your own pay day loan shark.

 

[dennismenace]

I would reduce federal income tax withholding in your case. Still take home more, same net tax result next year, and no underpayment of estimated tax penalties

This makes perfect sense. CT and the Fed governments are two separate entities. Liabilities to one cannot be offset against another one. Apples and apples; oranges and oranges.

 

[husky8273]

There's no CT interest due if your CT 2021 withholding is:

• 90% of the total income tax shown on your current year Connecticut income tax return; or
• 100% of the total income tax shown on your preceding year Connecticut income tax return, if you filed a Connecticut income tax return for the preceding taxable year that covered a 12-month period.

agree w/ willie99 - reduce your fed w/h to compensate for the SS overpayment

 

[Chin Diesel]

Trying to learn me something new today.

If I am reading this correctly, Connecticut puts a penalty on your state return if didn't withhold enough throughout the year and have to make a large payment at the end? Never heard of that.

Is this also true of federal taxes?

I've been living state tax free since early 90's and I manage federal taxes to small refund or payment so it's way outside my personal knowledge base of paying interest for underpayments throughout the year.

 

[husky8273]

Trying to learn me something new today.

If I am reading this correctly, Connecticut puts a penalty on your state return if didn't withhold enough throughout the year and have to make a large payment at the end? Never heard of that.

Is this also true of federal taxes?

I've been living state tax free since early 90's and I manage federal taxes to small refund or payment so it's way outside my personal knowledge base of paying interest for underpayments throughout the year.

both IRS and CT will charge interest if withholding/estimated payments fall below various "safe harbor" thresholds

 

[Chin Diesel]

both IRS and CT will charge interest if withholding/estimated payments fall below various "safe harbor" thresholds

Learn something new every day. I get it at a certain level the fed and states need a flow of money coming in every week via paycheck withholdings. Getting a cash dump almost in its entirety only between Feb-Apr every year doesn't make much sense, but I've never seen the question on a work sheet, 1040 form or software on penalty for low withholdings.

 

[Kmba2Rmemba]

I would reduce federal income tax withholding in your case. Still take home more, same net tax result next year, and no underpayment of estimated tax penalties

That was my gut reaction. However, doesn’t look like I have the ability to freely reduce my federal income tax withholding like I do for my CT income tax withholding. I see that form W-4 provides that I can reduce my federal withholding if I expect to claim deductions other than the standard deduction, and I’m supposed to use the deductions worksheet to calculate how much of a reduction to enter into the appropriate line item on form W-4. I take the standard deduction so don’t think I can utilize this ability to reduce my federal withholding. Not an expert at the forms and may be doing something wrong, so I’m all ears.

 

[McLovin]

I feel like this thread was just a low key brag that this guy made $140K in the first 3 months of the year. I doubt that someone who makes that kind of money would come to the-boneyard.com for legit tax accounting advice.

 

[Waquoit]

Trying to learn me something new today.

If I am reading this correctly, Connecticut puts a penalty on your state return if didn't withhold enough throughout the year and have to make a large payment at the end? Never heard of that.

I had that good hit at the track where they take the fed tax out and it was up to me to send the state some scratch. Never got around to it. They can bill me.

 

[Kmba2Rmemba]

I feel like this thread was just a low key brag that this guy made $140K in the first 3 months of the year. I doubt that someone who makes that kind of money would come to the-boneyard.com for legit tax accounting advice.

Wasn’t posting to brag. I understand that I’m fortunate to be in the position, but I also value the opinion and advice of people on here and wanted to get some takes before going to a tax expert. Especially if I’m overlooking something and the answer is very simple.

 

[Excalibur]

May not have been totally clear in my post. I’m contemplating reducing the CT income tax that gets taken out of each paycheck, thus yielding a higher take home amount. Knowing that I have a large federal refund coming (due to double pay of social security), I would use that refund to pay taxes owing to CT. Hoping it’s a wash. The key then becomes - would I rather have more take home now and pay CT interest on the underwithheld amounts (1% per month) or have less take home but no interest liability in the future. Thinking I can easily beat 1% in the market so I’m leaning towards the former.

Happy to field your thoughts if I’m overlooking something obvious

There is also an underpayment penalty in addition to the 1% monthly interest. I think it's 10%.

You could do what you are planning to do, and just make a q4 estimated payment to the state to avoid the interest and penalties.

 

[husky8273]

There is also an underpayment penalty in addition to the 1% monthly interest. I think it's 10%.

You could do what you are planning to do, and just make a q4 estimated payment to the state to avoid the interest and penalties.

Not necessarily - could be charged interest on the underpayment for the first 3Qs. If the 4Q payment was done through withholding, not an ES payment, you may be able to avoid the interest.

 

[willie99]

That was my gut reaction. However, doesn’t look like I have the ability to freely reduce my federal income tax withholding like I do for my CT income tax withholding. I see that form W-4 provides that I can reduce my federal withholding if I expect to claim deductions other than the standard deduction, and I’m supposed to use the deductions worksheet to calculate how much of a reduction to enter into the appropriate line item on form W-4. I take the standard deduction so don’t think I can utilize this ability to reduce my federal withholding. Not an expert at the forms and may be doing something wrong, so I’m all ears.

Federal form W-4, line 4b, enter the amount you want them to reduce your withholdings per pay period

If you want 6000 more take home per year, and you're paid weekly, enter 115 on that line

 

[Kolumbo]

Learn something new every day. I get it at a certain level the fed and states need a flow of money coming in every week via paycheck withholdings. Getting a cash dump almost in its entirety only between Feb-Apr every year doesn't make much sense, but I've never seen the question on a work sheet, 1040 form or software on penalty for low withholdings.

Income tax is pay as you go and it's easy if you are a W-2 employee and your employer is withholding your taxes. Self-employed people have to make their own estimated income tax payments and many who don't bother with accurate estimates often owe penalties and interest at the end of the year.

The easy fix is have the new company's payroll department enter YTD earnings and withholdings based on reports from the prior payroll department. It's standard practice.