Adjusting Your Tax Withholding

Take home more money by adjusting your income tax withholding.

Better Investing


If getting big checks in the mail makes people happy, then our country should be laughing out loud this time of year. The IRS says the average tax refund in 2008 amounted to about $2,400. Which mean the average taxpayer is having $200 too much withheld from their average paycheck every month.

Why does it happen? Often because big deductions, like mortgage interest, aren’t figured into withholding allowances.

But there’s a simple solution. It’s perfectly legal to changing the number of allowances on your W-4 so you’ll have less withheld. You can get one from your employer, or download one from the IRS.

There’s also a worksheet that will help you figure it out, or even better: use the handy calculator on the IRS website. In less than a minute you can figure out exactly how many allowances you should claim to minimize your withholdings.

Suppose instead of sending $200 a month to Washington, you put it in a mutual fund every month, maybe a 401(k) at work. If you earn 12%, in 10 years you’ll have an extra $50,000. Now that’s painless saving!

Of course, the last thing you want to do is not have enough withheld… so be careful. And if you do adjust your withholding to get fatter paychecks, don’t forget to adjust your savings strategy, too. You’re working for that money, make sure it works for you.

Stacy Johnson

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