Adjust Your W-4: How to Increase Your Paycheck and Tax Refund

    

Was your tax refund lower than usual last year? Was it higher? Worst of all, did you end up owing back taxes to the IRS? If you don't have an unusually high income or if you have plenty of deductions, the problem may be an incorrect or outdated W-4 form. Money

Claiming the wrong filing status or number of allowances on your W-4 form can lead to too little or too much tax being withheld, which can drive your refund or paycheck down. Here's a quick look at how you can adjust your W-4 to increase your paycheck or refund.

What is a W-4 Form?

The W-4 form allows taxpayers to list the number of allowances and the IRS tax marital status they want to claim to increase or decrease payroll taxes. Generally, you'll complete a Form W-4 at the time you are hired. From there, it goes to the payroll department, where they use the information on the form to decide how much federal income tax to withhold from your wages. While your employer may not offer you a new W-4 form to complete, you can update your existing one at any time you choose.

Why Should You Adjust Your Tax Withholding

Any time you have a change in your income or household composition, you should select the correct tax filing status and adjust your tax withholding on Form W-4. For example, if you were single when you were first hired but you got married later, then you may want to change your filing status to "Married" on the form. If you have an increase (or decrease) in the number of dependents in your home, you should probably change your number of allowances accordingly.

You should also change your tax withholding if your income has gone up or down considerably. If you got a second job and you expect your income to increase, you may have to reduce your allowances so that more tax will be withheld from your pay. On the other hand, if you lost a job or were laid off, you may have to increase your number of allowances so that you can keep more of your paycheck.

How to Update Your W-4

Should you decide to update your W-4, you can usually request a new form from your employer's payroll department. Begin by changing your marital status, if needed. In most cases, withholding as a married individual results in less tax being withheld than withholding as a single individual.

If you think that you need to adjust the number of allowances you claim, you can use the free tax withholding calculator on the IRS website to find the best number to use for your income level. Incidentally, you are not obligated to claim the same number of allowances on your tax form as you do on Form W-4. Whatever changes you decide to make, try to adjust your form as early in the year as possible so that your new information can have the most effect on your tax liability.

Adjusting your W-4 form can help you keep more of your paycheck or get a bigger refund. If you're unsatisfied with your income tax result, consider updating your W-4 to get the tax refund you want.

*Image courtesy of freedigitalphotos.net 

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