Get More Money for the Holidays -- Adjust Your Tax Withholding

Tax Planning

Your Ticket to Extra Cash for the Holidays

Better than a lottery ticket, filing a new W-4 can really put more money in your pocket when you need it.

How would you like an extra $1,000 to spend for the holidays, without dipping into your emergency fund or funding a new yacht for the credit card bosses by taking on extra debt?

Calculator: Set Your Withholding Right

If you’re an average taxpayer, we can show you the way. All it takes is a few minutes to fill out a W-4 — the little form that controls how much federal income tax is withheld from your paychecks. Most of us fill out a W-4 when we start a job and never give it another thought. But you can revise your form at any time.

And that’s the secret.

Each year, about 75% of all workers receive tax refunds in the spring, proof positive that too much was withheld from their checks during the previous year. The more than 101 million refund checks sent out this year averaged about $2,600 each. If you’re like most taxpayers, then, you’ve already overpaid your taxes by a couple of thousand dollars.


Isn’t that enough generosity toward Uncle Sam? Why not file a new W-4 now, cut withholding to its appropriate level . . . and pocket an extra $1,000 by the end of the year? The extra cash could come in mighty handy to fund your holiday generosity toward family and friends. (And if you’re among the majority of Americans who seem infatuated with springtime tax refunds, take heart: Overwithholding up to this point means you likely already have banked a healthy 2014 refund.)

It’s surprisingly simple to fix your withholding. Just ask your company’s payroll office for a W-4 or download one here. The more "allowances" you claim on the form, the less tax will be withheld. Once you give a W-4 claiming extra allowances to your employer (not the IRS), your take-home pay should rise on your next payday.

Ah, but how do you know how many allowances to claim? Worksheets that come with the W-4 will help, and you can get detailed instructions in IRS Publication 919, How Do I Adjust My Tax Withholding? Or you can slog your way through the IRS's online withholding calculator.

The Kiplinger Way


But we've got a better idea. If your 2013 financial situation is likely to be similar to 2012's, take advantage of Kiplinger's Easy-to-Use Tax Withholding Calculator. Answer three simple questions (you'll find the answers on your 2012 tax forms), and we'll estimate how many additional allowances you deserve. We'll even show you how much your take-home pay will rise starting next payday if you claim the allowances on a new W-4.

Our quick-and-easy method is a helpful guide, not gospel. And it's based on the assumption that your financial life hasn't changed dramatically. If you have a new baby, get a new job or have an adult child who qualified as a dependent in 2012 but won't in 2013, for example, the calculator won't reflect how such events will affect your tax bill ... and your tax withholding.

But for most Americans, our calculator will paint a reliable picture. That, in turn, should accomplish two important goals:

1) Get you motivated to grab a W-4 to pinpoint how many extra allowances you should claim; and

2) Get you more of your money as you earn it.