By JLP | February 28, 2006
No, this isn’t some intro to a multi-level marketing scheme.
If you are like a lot of people, you are probably getting a decent tax refund this year. Did you know that with some planning, you can actually have that money during the year instead of letting the government use it all year interest-free? Your goal should be to get the amount withheld from your paycheck as close as possible to your actual tax liability. That way, you get to use the extra cash throughout the year to fund your emergency fund, Roth IRA, 401(k) or anything else you might need.
Step 1: Fill out Form W-4 (PDF), which tells you how many Withholding Allowances you should be using. Or, if you prefer, the IRS also offers a Withholding Allowance Calculator. The form is pretty straight-forward so it shouldn’t pose any problems. Just follow the directions. Remember, if you itemize your deductions, you will need to fill out page 2 of Form W-4. Now, just because the form tells you can claim a certain number of allowances DOES NOT mean you have to. In fact, I would be conservative so that you don’t owe money at tax time.
Step 2: Once Form W-4 is filled out, it must be turned in to your Human Resources department so that they can start withholding the proper amount.
That’s it! Next time I’ll show you how your company figures out how much to withhold from your pay. It’s a pretty cool calculation and relatively easy once you get the hang of it.