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don't know if anyone else has experienced this, but I had a number of clients in the past two years whose wage withholding dropped and they told me they didn't change anything at work. Not knowing what their payroll department is up to, I usually advise an additional $ amount based on how often they are paid, rather than try to rework a W-4. for retirees who owe, I usually print out a W-4V for them to file with Social Security. Although not ideal (often 12% is too little and 22% is overkill), it is an easy method of getting more withheld. The State of Florida used to have a surprisingly simple W-4P form but that went by the wayside. But sometimes all we can do is point out how much they are paying in interest and that it is currently at 8%. You can lead a horse to water...

I had a self-employed client who owed in the five digits every year. The first time I prepared his return I dreaded telling him he owed something like $20k. He didn't even flinch. He said he makes better use of that money in his business during the year and the profits more than make up for the interest and penalty. He had figured out what was best for him. I like Dennis's idea of having all the withholding in December. For clients who take their IRA distributions in December, they could have their year's taxes withheld and not bother with estimates. Now that banks actually pay decent interest, putting the estimate money into a savings account could yield some profit. I usually pay all of my estimates at once in April since I make most of my income in the first quarter and have the cash. I might rethink that strategy.

Several points. The IRS interest is deductible but the penalties are not, and IRS interest rates are now higher than banks are paying, especially after paying taxes on the interest income. If he borrowed on a line of credit, all the interest should be deductible and the interest rate should be about the same as what the IRS is charging. And if cash flow is good, you can even put expenditures on a credit card and pay it in full every month, for a short-term interest free loan. Bottom line is, you need to crunch the numbers to see what is best.

The proposed regulations are here: https://www.federalregister.gov/documents/2020/06/10/2020-12213/certain-medical-care-arrangements, but indicate that they take affect when finalized. I also don't believe they have been finalized.

Reimbursements of actual expenses are not taxable. You'll get a 1099-LTC with Box 3 indicating that the amounts were reimbursed expenses. You'll file Form 8853 showing nothing is taxable. But if they are paid on a per diem basis, Box 3 will indicate per diem and any amounts in excess of the actual expenses OR an excluded minimum are taxable. The excluded amount changes each year and can go up or down ($390 for 2022, $420 for 2023, $410 for 2024). So if the actual expenses amounted to $300/day for 2023, they would only have to pay taxes on payments in excess of $420/day. If actual expenses amounted to $500/day, the excluded amount is irrelevant and they pay taxes on payments in excess of $500/day. (You look at the totals, not the actual per day expenses) Accelerated death benefits from life insurance are reported in Box 2, but are not taxable if terminally ill (otherwise, they are treated as Box 1 amounts and are only taxable to the extent they exceed expenses or the excluded amount).

It's more of a lifestyle than any financial logic. They're just being contrary and childish, and they're willing to pay the price.