Is there a reason that I can't do the max number of allowances on my w4, and pay no income tax during the year? I would then put the amount that you are normally supposed to withhold every pay check into a savings account or CD.

The reasons being: I would get a little interest on the money throughout the year, improve my cash flow throughout the year if I ever needed a little more for some reason, and not let the government hold on to my money throughout the year.

Please don't tell me I shouldn't do this because I might not have enough at the end of the year. I have plenty of self-control to execute this if it is possible.

Just want to know if I can do this and not get any sort of penalty? Furthermore, could I file an extension every year and push this off till October without paying any penalties?

Was thinking I could do this with my property taxes and HOA dues as well, and have tens of thousands gaining interest throughout the year.

  • 3
    Penalties for (consistently) owing more than $1000 when you file your taxes: irs.gov/taxtopics/tc306.html Commented Aug 10, 2016 at 19:28
  • I see. There is a bunch more info about it in the publication 505 in that link in the one you sent. But that $1000 is the general rule I guess. Our tax laws are so complicated. Seems like I can't do it though. Thanks! If you want to make an answer I will mark it as correct. Commented Aug 10, 2016 at 19:38
  • Just because you can't do it with income tax doesn't mean you couldn't do it with property tax or HOA dues if you wanted to
    – homer150mw
    Commented Aug 10, 2016 at 21:59
  • @homer150mw the penalties on those are usually much stiffer than the IRS
    – littleadv
    Commented Aug 11, 2016 at 2:31
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    Actually $1000 or 10% of your liability (not balance) whichever is more -- but you have to be pretty high income for 10% to be significantly more than $1000. In addition to the general underpayment penalty, for payroll income note in pub 505 the (separate) $500 penalty for W-4 overclaim with "no reasonable basis" on p12 and the "lock-in" where they "determine" you can only get X allowances on p11. Also, the states I have exprerience of have similar penalties -- although of course state income taxes are lower rates and hence amounts. Commented Aug 11, 2016 at 6:34

2 Answers 2


There is the underpayment penalty, and of course the general risk of any balloon-style loan. While you think that you have enough self-discipline, you never know what may happen that may prevent you from having enough cash at hands to pay the accumulated tax at the end of the year. If you try to do more risky investments (trying to maximize the opportunity) you may lose some of the money, or have some other kind of emergency that may preempt the tax payment.

  • If I give the money to the government as I earn it, then I would have less cash on hand during the year if I needed it. So I fail to see the logic of giving it to them early. I am saying fill out the w4 correctly then have that amount auto draft every month into a savings account or cd for a year. These are not risky investments. I specifically asked not for an answer like this. You are correct about the underpayment penalty which defeats the purpose of my idea. If the underpayment penalty didn't exist then my idea would work perfectly fine. Commented Aug 12, 2016 at 14:20
  • I didn't know about the underpayment penalty when I originally asked the question. Commented Aug 12, 2016 at 14:30
  • @bpfrenchak that's why it exists... The law is that you pay taxes as you earn the income, and allowing you to play with allowances is already an "exception" to that rule (self-employed have to pay estimates quarterly and may have stiffer penalties for non-compliance). In the end, the IRS can force your payees (employers, banks, etc) to withhold taxes at source if you abuse the system too much.
    – littleadv
    Commented Aug 12, 2016 at 16:30

Regarding doing this with your HOA: the cost could be very high.

In my community the annual dues is less than $100 a year. When people don't pay they are aggressive. There is a late fee after 30 days, then a higher penalty at 60 days. That 2nd notice comes from a lawyer. The community charges the homeowner the lawer's fee. After another 30 days they file a lien. With those costs a small bill has ballooned to over $1,000.

Property tax has two other issues. The government can sell your house. The lender can foreclose. Neither is good.

  • I wasn't talking about not paying on time. Just setting aside all the money I would need for income tax, property tax, and HOA till the end of the year. Still pay on time and avoid any fees. Commented Aug 12, 2016 at 14:14

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