If you get all teary-eyed watching It's a Wonderful Life (or Bad Santa for that matter), imagine how you'd feel if a rich uncle stepped in to help pay all the extra bills you're racking up this holiday season -- stuffing extra cash into your pocket starting now and continuing into the New Year as you face the attack of beastly credit card bills.
Forget Christmas miracles and Santa Claus. Turn to your good old Uncle Sam.
That's right: Uncle Sam.
Most employees have the power to put at least a couple hundred extra dollars in their paychecks each month, starting this month. And we don't mean by working overtime or taking on a second job. Simply tell Uncle Sam to back off a bit in biting into your paychecks. Think of it as granting yourself a well-deserved do-it-yourself year-end bonus.
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The potential for workers to beef up their paychecks is abundantly clear in the latest IRS statistics. The average refund in 2007 was nearly $2,500.
This is proof positive that workers had too much tax withheld in 2007. And history suggests the pattern has continued unabated throughout 2008.
That means the average taxpayer is having about $200 too much withheld from his or her pay every month. Wouldn't it make more sense to get that money when you earn it? Particularly at this time of year?
Fortunately, it's easy to tell your Uncle Sam to take less so your boss can put more in your paycheck. But you have to get cracking. You need to act quickly to knock down withholding before the end of the year.
Adjust your withholding
But what if you're addicted to springtime tax refunds? No problem. If you're just "average," you've probably already overpaid your taxes by about $2,000 this year -- guaranteeing yourself a nice fat check when you file your return next spring.
To cut withholding, all you have to do is file a new W-4 form -- Employee's Withholding Allowance Certificate -- with your employer and increase the number of "allowances" you claim. You can claim an allowance for yourself, your spouse and your dependents, for example. But don't stop there. You can also claim allowances based on the deductions and credits you'll claim.
Each allowance basically makes $3,500 of your annual income off-limits for withholding. Claiming extra allowances will automatically push down withholding ... and push up your take-home pay.
Kiplinger's user-friendly calculator
Of course you can't just make up a number for your W-4. The IRS has a dense 19-page booklet with seven intimidating worksheets to guide you toward the proper number of allowances for your circumstances. The agency even offers a Web calculator to help. But it requires more than 30 entries.
To make things less painful -- and to encourage workers to set their withholding situation straight -- we've developed a simple, easy-to-use calculator. Just answer three questions (you'll find the answers on your 2006 return), and we'll give you a solid idea of how many more withholding allowances you should be claiming. It's based on the premise that your financial life in 2008 is pretty much the same as in 2007. All sorts of things can affect the amount that should be withheld from your check: a new job, a new marriage, a new child, or a new house, to name a few.
But if your financial life is shaping up to be pretty much the same this year as last, our calculator will quickly figure how many extra allowances you deserve. And to give you the incentive to fill out a new W-4, we'll show you how much extra money filing that form will put in your paycheck.
If our calculator gets your attention, get a W-4 from the IRS or ask your company's payroll department for one. Work through the instructions, pinpoint the number of allowances you really deserve and file a new form with your boss. You should see the result next payday ... just in time for that last minute trip to the mall.
