Make More Money By Adjusting Your Witholdings

Why give the IRS an interest-free loan throughout the year? Instead, boost your monthly earnings by changing the amount of withholdings you claim. Kiplinger offers an easy 3-question calculator to help you figure out the right number.

If you want to be more exact, you can follow the 19-page IRS work booklet (PDF), or answer their 30 item online questionnaire.

Once you do that, file a revised W-4 (PDF) with your employer, and start seeing the pay bump within 30 days. — BEN POPKEN

Withholding Calculator [Kiplinger]
Get Next Year’s Refund Now [Kiplinger]

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  1. MercuryPDX says:

    I’m kind of intimidated to do this. My salary includes bonuses of an indeterminate amount that change every quarter based on company and personal performance.

    Aside from that, I kind of enjoy getting a decent refund check and never having to pay. I think an extra $75 or so a paycheck NOW, instead of a guaranteed lump sum next March is not worth the risk.

  2. hardcle says:

    I’ve been doing this for years. I’ve tweaked my withholding so I pay

    Why loan *your* money to the government for free?

  3. Crazytree says:

    better trick:

    works extra-well if you have 1099 and W-2 income.

    at the end of the year withhold like a mofo on your W-2 income… PRESTO!!! no penalties!

  4. ChadJ says:

    I disagree with the whole tax-free loan sentiment. You don’t make more money (as the title of the post states) by adjusting your witholding, you just shift how the taxes get paid. The only money that is up for grabs is the free interest that the government makes.

    But here’s the rub on that. The interest the government makes on the difference between a person’s income at Single/0 and a person’s income tweaked for optimal monthly (after figuring out what the difference is, getting the forms, filling them out and turning them into their HR department) witholding is less than what that person would typically get paid for an hour’s worth of work.

    Personally, I go the other way. I give the IRS extra money every paycheck. Last year I made $54k and got $9k of that back at the end of the year. Did I make any interest on that? Of course not — but how much interest did I save on loan payments when I took out an $8k loan instead of a $17k loan to get a new roof?

  5. HawkWolf says:

    I think people are more inclined to get a refund because it keeps money OUT of their hands, until they can sit down and go, “I’m gonna spend my refund on THIS!”. If you don’t do that, then you might just blow the refund on Starbucks or something, every month, not even realizing it.

  6. queen_elvis says:

    You need to warn people that they will get a fat bill in April if they do this. When I was young and dumb and making $12/hour, I did not make that connection.

    Now that I’m self-employed, however, I get a fat bill no matter what.

  7. mschlock says:

    I prefer Turbotax’s calculator because it explicitly asks you to enter state taxes, which are deductible.

    [turbotax.intuit.com]

    I usually use the Turbotax calculator once a quarter and make adjustments. Looks like I’m doing OK for now as long as I don’t sell any stock. If I do, I’ll need to go in and withhold a bit more.

    Bonuses are always withheld at a high flat rate regardless of your W-4 exemptions (to make sure you don’t just take it and spend all of it), so you should calculate your withholding without them.

    When you do this, don’t forget to adjust your state withholding too, if you have it — and keep in mind it’s not the same number. I file with 6 Federal exemptions but 18 CA ones. Each CA exemption seems to adjust my CA withholding by maybe ten bucks a paycheck.

  8. jrdnjstn787 says:

    I do this and have been doing this for the past 8 years. I take 7 deductions on my w-4 form. It helps if you’re a single parent with children. I also contribute to my job’s flex medical account so that lowers my taxable income. I don’t recieve a huge amount of money back but I do recieve around 3,000. I need my money now not a large chunk every March. They take out about 10$ every week out of my check for taxes.

  9. costanza007 says:

    this is such an excellent idea… perhaps it will make more people actually think about whats happening with their taxes and paychecks.

    there are still millions of people out there who think they don’t actually pay taxes because they get a refund every year, which is ummm the opposite of right.

  10. Outtacontext says:

    I got burned a few years ago and had a big tax bill come April, so I withheld more and now see an abundance of $$ when the refund check comes rolling in.

    I decided this was stupid. I liked the idea of “saving” this way, but it was NOT the best use of my money. So, I decided to withhold less BUT put the extra into my retirement fund. Much smarter IMHO.

    But, I’d like to keep my take home pay about the same each month. I had a hard time figuring out just how much a deduction was worth to me. So, I’m experimenting.

    The bottom line: when I withhold less, I put more into my retirement fund.

  11. synergy says:

    I’ve managed to tweak the withholding for my husband and me so that there’s very little difference at the end of the year to the amount owed for taxes. It helps that our taxes aren’t complicated at all. We don’t own stocks or anything like that, we don’t have kids, and we live in Texas so there’s no state taxes.

  12. LAGirl says:

    @Outtacontext: that’s the best way to do it.

    take a higher number of exemptions (you can take up to ‘9’). then each week, put the additional cash into a retirement or investment account. if you take ‘0’ or ‘1’ on your W4, the government is using your money all year, you don’t make a dime on it.

    if you’re worried that you’ll spend the extra cash, set up an automatic deduction to go straight into an investment account, so it’s not even there for you to spend.

  13. DeleteMyAccountPlease says:

    Beware of adjusting the withholding too low.

    You’ll pay a penalty if you don’t meet one of two requirements. For next April 08, you must 1) Withhold at least as much as your 2006 tax bill or 2) Withhold at least 90% of your 2007 tax bill. For #2 you would have to calculate your taxes ahead of time, so it’s easier to hit the 1st requirement.

    If you ever see you’re gonna come up short, you can adjust anytime before 2007 ends to make up for it. That’ll require a new W4.

  14. missjulied says:

    You can also adjust low and pay quarterly without penalties. I just take my previous year’s tax bill and divide by 4. That gives me 3 extra months with my money, which I just keep in a high-yield account.