In addition to residency pay I receive a stipend from the military. Some is annually and some monthly. No federal tax is withheld from the monthly sum but rather taken out as one chunk at a flat 25% from the annual stipend. The 25% does not change with number of exemptions. What are the implications of trying to file an exempt w-4 then paying back estimated taxes?

Zip Code: 01824

Each year, you need to pay in a certain amount of taxes to avoid being penalized for underpayment of taxes. The "safe harbor" is the lesser of 90% of your current year's tax liability or 100% (increased to 110% if your AGI in the prior year exceeded $150k) of your prior year's liability.

For the penalty calculation, the IRS will look at your withholding during the year, plus your estimated tax payments made evenly over the year. While the IRS assumes you pay your withholding throughout the year, they know exactly when you pay your quarterlies. So you can't make a huge 4th qtr estimate as your only tax payment for the year and not be penalized (unless you earn all your income during the final 4 months of the year.)

So your goal is to pay in enough taxes to not be penalized, and you can do so through withholding or through estimates. If paying your taxes with quarterly estimates is easier for you than having taxes withhold from your stipend, then find out from the government if you can claim to be Exempt.

I hope this helps you out.

Zip Code: 01801