No offense to this theory yet here is some further detail to keep the mind clear.
The Employer is the one reaping the interest . They pay quarterly to the IRS...so all that money that is ficticiously taken from your pay for the allocated tax's ( city, fica, state, federal)...gets placed in an account. It grows quite nicely before the quarter pay out transpires...So your employer is the one reaping the rewards from that little "allocating to a separate bank account" for payments on taxes. Everytime I look at my quarterly of what was pulled for taxes...I laugh and think...hmmm...nice chunk of change my boss (owner) is getting from this sweet government delay in tax payments. The Feds/state/locals are not making the interest...your corporate owners (business owners) are. Unless the laws of reporting have changed...that's how the accounting side works for wages for those who aren't self employed and allow the employer to do the deductions.
I've heard of folks who decline having their business (employer) do the deductions...yet they are at risk for being tracked for errors...on many levels....
I like having an extra ($10) deducted...it actually saved me when I had to make a line item claim that increased my amount owed at year end.
I am in delay this year (still got pending docs to remit)...otherwise my associates are saying they got theirs from efile within 10-12 days...
Interesting point -- I've never been a business owner, so it didn't occur to me that they pay these taxes only quarterly, but that makes sense. So sure the employer makes some hidden profit on this. But the government keeps most of the profit ... e.g., your January withholding is held, and paid to the government as tax in April (I suppose), but you don't get the money back until a year later, to Uncle Sam's benefit.
All beside the point though ... the one being deprived of an opportunity to make interest on your own money is YOU
I for one would be happy to under-withhold and owe some money. As long as you're not filing late, or significantly under-withhold, there is no penalty and no interest for modest underpayment. People act like it's some horror to have to send a check with your 1040 -- assuming you got the cash on hand it's no big deal. Just another bill. I do it with a smile because I got one over on the tax man.
Of course it takes judgement and you can't go too far without penalty. But I'll let you in on a secret -- even the IRS penalties are not too severe. Late payment fees are pretty trivial. (Late filing is worse, so file even if you don't have the money to pay.) Unless you're talking serious chunks of money they're nicer than you'd suppose. I know whereof I speak.
(This year I very slightly underpaid. So I just zapped $200 to my deductible IRA as I was doing my taxes, so as to balance out at zero due/zero refund. Then I uploaded the 1040 and it was accepted almost immediately. Done.)
Edited by Kevin20, 22 February 2012 - 12:32 AM.