Fatten Your Paycheck and Still Get a Tax Refund
Updated for Tax Year 2013
If you usually get a tax refund, but would like to start putting more money in your pocket every month, we can help. Yes, you still have to fill out a W-4 form. But we've developed a quick and easy guide to assist you.
Could you use more money in your pocket each month?
The average Federal tax refund for 2012 was more than $2,803.
That means, on average, taxpayers who get refunds let the IRS take about $240 more out of their paychecks each month than the government deserves.
But here’s the good news: You can put an end to that over withholding, fatten your paychecks and still get a tax refund at tax time.
All you have to do is file a revised 2014 W-4 Form with your employer. The information on the W-4 determines how much federal income tax is withheld from your checks.
The more “allowances” you claim on the form, the less tax is withheld from your pay.
How do you know how many allowances to claim so that your withholding matches your tax bill? Worksheets that come with the W-4 will help. You can also use the IRS Withholding Calculator or TurboTax's free W-4 Withholding Calculator .
Try this quick method for adjusting your W-4
We’ve come up with an easier way to learn how many extra allowances you should be claiming.
This method assumes that your financial situation is similar in 2014 to what it was in 2013. And, for most taxpayers, that’s a pretty safe assumption.
Using Table A below, find your filing status and income in
one of the first two columns. Then, find the corresponding figure in the third column labeled, "Annual Value of Each Withholding Allowance."
Then divide the amount of your last year's refund by that figure.
The figure is the annual value – in terms of reduced withholding and higher take-home pay – of each allowance you claim. Say, for example, that you’re single and expect your taxable income for 2014 to be $100,000. The table shows that each allowance you claim will reduce withholding by about $1,106 for the full year.
Now, let’s say you got a $3,500 tax refund earlier this year and, if nothing changes, you’re likely to get a similar one next year. Simply divide $3,500 by $1,106 and you’ll see that you probably deserve at least three extra allowances.
Check out Table B to seek how much additional take-home pay you’ll enjoy each month if you claim three extra allowances on your W-4. In this example, it's $276 a month.
File a new W-4 form with your employer and the extra cash could start showing up next pay day. If you make this change after the start of the year, you would have been overwithheld for a time, meaning you’ll probably get a refund for 2014 when you file your taxes in 2015.
This method is designed as a rough guide. Goal number one is to get you motivated to grab a W-4 and pinpoint how many allowances you should be claiming. Goal number two is for you to get more of your money as you earn it rather than waiting for a tax refund next spring.
Annual Income for Single FilerSource: turbotax.intuit.com