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Tax Planning

Should I Take a Pay Raise or a Tax Refund?

This is one of the 21 tough financial questions posed in the “Do This or That?” cover story in the September 2011 issue of Kiplinger’s Personal Finance. Use the drop-down menu above to consider other financial conundrums and the right answers for you; share your own experiences and insights in the Discuss field at the bottom of this page.

File a revised Form W-4 with your employer if you got a big tax refund this year—you had too much tax withheld from your paycheck. To fatten your paycheck for the rest of 2011 and still get a tax refund next spring, claim more allowances on the form and you’ll have less tax withheld from your salary. And because you have already had months of overwithholding this year, you’ll still get a refund when you file your taxes. To figure out how many allowances you can claim, try the withholding calculator at can get a quick estimate by using’s Tax Withholding Calculator.

Don’t do a thing if you look forward to receiving a fat tax refund each year and you’re worried that you’ll fritter away the extra dollars if you change your withholding. With banks paying so little interest on savings, it’s not like you’re missing out on big earnings. And if a tax refund is your favorite form of forced savings and you use it to pay off a credit card bill or finance a vacation, stick with what works.


Kiplinger's Tax Withholding Calculator

SLIDE SHOW: 10 Smart Uses for Your Tax Refund