This is a money saving tip for the 50/50 Challenge.
As I mentioned yesterday, I spoke to Bob Meighan, TurboTax’s Vice President and CPA, last week about ways to lower your tax bill and more. During the discussion we talked about how people can have a choice when it comes to withholding on their wages. Either you can be conservative, have more withheld, and get a bigger tax refund or you can adjust your withholdings and see bigger paychecks throughout the year.
For those who want to have an increase in their tax home I want to share some tips on how you can calculate your proper withholding and introduce you to a very helpful tool at TurboTax.
What’s a W-4?
I’m not sure how it went with you, but whenever I started a new job at the office I would get a packet of paperwork from Human Resources to fill out and read. Everytime you start off at new job you should at least receive a W-4. The form assists employers to collect the proper amount of federal income taxes from your wages.
- you get married
- you have a child ( you added more dependents)
- you have a significant change in deductions
That’s because there’s a good chance your tax obligation has changed and you want to adjust accordingly. The fun part is calculating the amount.
How to Calculate Your Withholding
To get started, you need to grab last year’s tax return (assuming you’re making about the same amount of money) and your current paycheck. Here’s what the W-4 will ask you:
- Enter “1” for yourself if no one else can claim you as a dependent
- Enter “1” if: (You are single and have only one job, You are married, have only one job, and your spouse does not work, or Your wages from a second job or your spouse’s wages (or the total of both) are $1,500 or less)
- Enter “1” for your spouse. But, you may choose to enter “-0-” if you are married and have either a working spouse or more than one job
- Enter number of dependents (other than your spouse or yourself) you will claim on your tax return
- Enter “1” if you will file as head of household on your tax return
- Enter “1” if you have at least $1,900 of child or dependent care expenses for which you plan to claim a credit
- Child Tax Credit (check your income)
- Add lines A through G and enter total here.
AS you can see, there are several ways you can answer some questions, so my suggestion is using a withholding calculator to help you out and look at different options. If you’re looking for an easy solution, please check out TurboTax’s site and use W-4 Salary Calculator. It will walk you through everything and guide you through the calculations.
How to Change Your Withholding
Once you have an idea on how much you need to have withheld for your paychecks you should contact your Human Resources Department and request a new W-4. Simply fill it out and return it to them.
Thoughts on Bigger Refunds vs Bigger Paychecks
This seems to be an issue with some personal finance bloggers, so I’d really like to get your opinion. Which do you prefer – bigger tax refund or bigger paychecks and why?
Photo Credit: IRS Form