How to Fill Out Form W-4 to Get More Money in Your Paycheck
The W-4 is a form you fill out when you start a new job to determine how much federal income tax is withheld from your paycheck. While the default W-4 settings will work for many people , you can customize your W-4 to get more money out of each paycheck, but you should be careful when doing so.
Filling out Form W-4: The Basics
Determine your tax situation
Think about your expected income, tax breaks, deductions and personal exemptions for this year. Are there any major changes compared to last year? Also gather any relevant tax documents that will help you make changes to your W-4.
Use the IRS Tax Withholding Calculator
The IRS provides an online calculator that you can use to calculate the correct tax withholding for your situation. Enter the relevant details and you will be prompted with the number of benefits you can apply for.
Claim dependent benefits
If you have qualifying dependents, be sure to claim benefits for them on Form W-4. Each benefit will reduce the amount of your taxable income.
Consider additional income
If you have additional income, such as interest, dividends or freelance work, you may have to separately account for estimated taxes on that income. Claiming fewer benefits may help cover the tax due.
Request backup withholding
If you were unable to withhold a significant portion of your wages, you can request an additional flat dollar amount withheld from each paycheck at Step 4(c) of Form W-4. This increases the tax collected in advance.
Update as needed
Major life changes, such as marriage, the birth of a child, or new deductions, may require filing an updated Form W-4 with your employer. Recheck your retention every time your situation changes. For more information, see our detailed guide to filling out Form W-4 .
More returns mean more retention throughout the year.
Instead of receiving a lump sum refund at tax time, it’s better to withhold correctly and get more from each paycheck throughout the year. This big refund means you overpaid taxes all year and the government kept your money; However, you could invest or earn interest on this money yourself. And ultimately, receiving a huge refund means that your tax withholding was too high and more than necessary was deducted from each paycheck. It’s best to adjust your tax withholding according to your tax liability.
For obvious reasons, I won’t list all the illegal ways people try to improperly maximize their tax refund, but there are perfectly legal ways to adjust your Form W-4 to optimize tax withholding. The key is to try to optimize tax withholding according to expected tax liability:
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Review your tax situation from last year. Did you receive a large refund or owe a large amount at tax time? Use this information to determine if you need to adjust your retention.
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Make sure the number of benefits claimed on your W4 is appropriate for your tax situation. The higher the number, the less tax is withheld.
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If there are major changes in your life, such as getting married or having a child, update your W4 to reflect this. Getting married allows you to qualify for additional benefits.
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Use the IRS tax withholding calculator to estimate the right benefits to claim if your tax situation is complex. This helps optimize tax withholding.
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If you work multiple jobs or your spouse does, adjust your W4 allowances accordingly on Form W-4 to prevent underreporting taxes.
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If necessary, adjust the backup withholding amount. You may receive additional tax for the pay period on Form W-4.
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If necessary, submit a new Form W-4 to your employer to update your withholding.
Bottom line: Getting a large refund means you had too much tax withheld during the year. Adjusting your W-4 form is one way to potentially receive more money in regular paychecks throughout the year rather than one big after-tax refund. Just be careful not to withhold too little, or you could face a penalty when you file your taxes. As always, consult a tax professional for advice specific to your specific situation.