Give Yourself A Pay Raise By Adjusting Your Federal W4 Form

When was the last time you adjusted your federal W4 form? Do you even know what a W4 is?

If you've ever had a job, you've completed a federal W4 form. It's just a simple one page form that tells your employer how much money to take out of your paycheck for taxes. You probably filled one out when you first started your job and then forgot all about it.

If you received a large amount back on your last income tax return then you are probably having too much money withheld from your paycheck for taxes, and you can save some money by filing a new federal W4 form with your employer.

An interest free loan?

Imagine someone walked up to you asking to borrow money. He says he wants you to give him $200 a month, and at the end of the year he'll pay you back. But he won't pay you any interest...not a dime. What would you say?

You'd probably tell him to take a hike. And you’d probably think he was nuts. Why should you loan him all that money and get nothing in return for your trouble?

But now stop a second and think…if you wouldn’t give him an interest-free loan, why do you give one to the government without thinking twice?

Because that’s exactly what you do when you have too much withheld from your paycheck. You tax return is YOUR MONEY. The government just borrowed it for a year and then gave it back without paying a penny of interest.

That’s a great deal for them, but for you…not so much.

Now think about how many times during the year you could have used a couple hundred dollars extra during the year. You may have been able to afford much more throughout the year, or you could have put that money to work for you by stashing it in the bank or investing it.

Most people treat a large tax return as a bonus that should be spent on luxuries, such as a vacation. Few people use the money to pay down their debt or buy investments. A vacation is always nice, but you when you come back your credit card debt and other bills will be waiting for you.

Reevaluate your withholding

Certain events in your life should always trigger a reevaluation of your tax withholding. Marriage, divorce, a new child, a new home, and a significant raise in salary can all have a major impact on your taxable income. You should also check it each year after you complete your tax return. This will ensure that you are on target for the following year.

To change your withholding, just ask your employer for a federal W4 form. You can also download the form yourself at IRS.gov. It takes less than five minutes to complete and it includes a simple worksheet to determine exactly how much you should withhold.

The tax code is full of so many complicated deductions and credits, that the amounts will never match exactly. But the federal W4 form will put you in the right ballpark.

Then all you have to do is contact your company's payroll department and have your withholding changed. You may miss the feeling of a big payday that comes with a large tax return. But you will appreciate the extra cash in your pocket each month even more.

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