It is always more fun to get a refund at tax time than to write a check to Uncle Sam. You can set up payroll deductions to get a bigger refund. This is one way to save, although the Wall Street Journal says you should consider other savings options because you are giving the government free use of your money. The plus side of using payroll deductions to save is that you can end up with a good-sized chunk of cash at tax time, which can come in very handy.
Request a blank W-r4 form from your payroll department. You must fill out and submit a new W-4 form like the one you completed when you were hired to change your payroll tax withholding. You are supposed to do this when an event such as marriage or the birth of a child changes your tax situation, but you are allowed to submit an updated W-4 anytime you feel you need to do so.
Claim fewer withholding allowances on your W-4 than you are entitled to. A withholding allowance is a dollar amount your employer deducts from your gross pay before calculating federal income tax withholding. The exact amount of one allowance depends on the length of the pay period. You can claim withholding allowances for yourself, your spouse and dependents. You may be able to claim allowances for the Child Tax Credit or for child care expenses. When you don’t claim all the withholding allowances, more money is withheld. Suppose you are in the 25 percent tax bracket, paid weekly and claim one less withholding allowance than you are entitled to. The amount of one allowance in 2013 was $75.00 per week. If you don’t claim that allowance, an extra $75.00 is taxed at 25 percent. That’s $18.75 in extra tax withheld. Multiplied by 52 weeks, this means you pay $975 too much and your tax refund will be increased by this amount.
List your marital status on the W-4 as single even if you are married. The tax rates your employer uses to figure income tax withholding are higher for single persons, so more tax is withheld when you list yourself as single on your W-4. The extra tax will increase the size of your refund when you file your tax return.
Ask your employer to withhold an extra amount of tax each payday. To do this, write the additional amount you want withheld on line 6 of the W-4 form. You can select any amount. All of the extra tax you ask your employer to take out will be credited to you by the IRS. To see how much extra tax withheld will increase your refund, multiply the extra amount per week by 52. For example, if you ask for $10 per week extra to be withheld, your tax refund will be increased by $520.
It’s okay to set up your payroll deductions so you have more tax withheld and get a bigger refund as a result. However, Internal Revenue Service rules say you are not allowed to add extra withholding allowances or list your marital status as married when you are single so that less tax is withheld than you are supposed to pay.
- Jupiterimages/Photos.com/Getty Images