There are a few things that are certain in life, however, there are at least 2 things we can all count on:
- Death
- Taxes
A few people I know actually look forward to doing their taxes every year because they know they’ll be getting a giant refund. For example, one friend just received a $3000 refund, and he’s been banking on getting that refund for some time to make some repairs around the house.
Is it wise to depend upon a large refund every year like he does, or should he be adjusting his withholding on his paycheck, and getting more money in his account up front?
My feelings on the issue are this; Why give an interest free loan to the government every year when you could be keeping that money for yourself, and even earning some interest on it?
This article will look at how to get less taxes taken out of your paycheck (or more taken out if you’re not paying enough).
Quick Navigation
How Do You Know You Need To Adjust Your Withholding On The W-4?
How do you know if you’re withholding too much on your taxes every year?
- If you’re consistently getting large refunds, like my friend who got an expected $3000 check, you’re probably withholding too much.
- If you’re ending up with a big tax bill at the end of the year, you might not be withholding enough.
- If your situation has changed, like you’ve gotten a divorce, you may need to adjust your withholding.
What other situations will necessitate a change in your withholding, either up or down?
- If you recently got married.
- You got divorced.
- You had a baby.
- You bought a house.
- You have new separate non-wage income and you want your withholding increased to account for it.
How To Adjust Your Withholding
To adjust your withholding is a pretty simple process. You need to submit a new W-4 to your employer, giving the new amounts to be withheld.
If too much tax is being taken from your paycheck, decrease the withholding on your W-4. If too little is being taken, increase the withheld amount.
NOTE: The W-4 form was redesigned for 2020 based on changes to the tax law. From the IRS: The new design reduces the form’s complexity and increases the transparency and accuracy of the withholding system. While it uses the same underlying information as the old design, it replaces complicated worksheets with more straightforward questions that make accurate withholding easier for employees. Allowances are no longer used for the redesigned Form W-4. In the past, the value of a withholding allowance was tied to the amount of the personal exemption. Due to changes in law, currently you cannot claim personal exemptions or dependency exemptions.
You can usually get a new copy of the W-4 form from your HR or payroll department, or simply grab it from the IRS website (W-4 Form) and fill it out on your own.
Not sure how much you should be withholding?
You can go to the IRS website and they have a tax withholding estimator where you can figure out what you should be withholding. I recommend going this route to figure out what to withhold, according to the IRS it’s the most accurate.
The estimator will walk you through 6 steps where it will ask you some questions about yourself and your filing status, your income and taxes paid via your paycheck, adjustments, deductions, as well as tax credits you can expect. Finally, it will then give you an estimated amount to be withheld for the year. Based on that you can update your W-4 if necessary.
So the easy 1-2-3 step process is:
- Figure out your new withholding on through the IRS’s tax withholding estimator.
- Get a new W-4 Form and fill it out completely based on your situation.
- Submit your new W-4 to your payroll department. The new withholding for taxes should take place moving forward.
If you were having too much withheld, you just gave yourself an instant pay raise!
Be careful, however, if you withhold too little you may find yourself with a nasty little tax bill at the end of the year, and scrambling to file for an extension!
Basics Of The W-4 And Filling It Out
Because I know the W-4 form can be confusing, let’s take a more in depth look at the W-4 itself and what you need to do when filling it out.
As mentioned above the form changed in 2020 to remove allowances, which is a big update. The form will now have you enter certain dollar estimates for the payroll system to use instead, which they claim should make your withholdings more accurate.
The new W-4 form has 5 steps to it, let’s look at it step by step.
W-4 Step 1: Enter Personal Information
Step 1 of the W-4 is just collecting your personal information and filing status. It will ask for information in 3 sections, (a), (b) and (c):
- 1(a) First name and middle initial, last name and full address.
- 1(b) Social security number.
- 1(c) Filing status: Single or Married filing separately, married filing jointly or head of household.
Once you’ve entered your personal information you can either complete steps 2-4 if they apply to you, or if not, skip to step 5.
W-4 Step 2: Multiple Jobs Or Spouse Works
Form W-4 says that not everyone should complete this step. Only do step 2 if: “you (1) hold more than one job at a time, or (2) are married filing jointly and your spouse also works. The correct amount of withholding depends on income earned from all of these jobs.
The form then gives you the choice of completing this step by filling out
- (a) tax withholding estimator for the most accurate withholding (most should do this),
- (b) using the worksheet on page 3 of the W-4 for a roughly accurate withholding, or
- (c) you can click on the checkbox on the form if you have two jobs total and they have similar pay. Otherwise you’re better off using the estimator (a).
If you have self-employment income as a freelancer or independent contractor, you’ll want to use the online estimator and it can help you figure out how much to withhold (which you can then enter on line 4(c).
NOTE: You should complete steps 3-4(b) for only one of your jobs, typically the higher paying job. Leave those steps blank for other jobs.
W-4 Step 3: Claim Dependents
In step 3 you will claim your dependents and the tax credits you will be receiving for them. See IRS Pub 972 for details.
If your income is $200,000 or less, or $400,000 or less if married filing jointly, you can claim $2,000 for each qualifying child under age 17. You can claim $500 for other dependents.
W-4 Step 4: Other Adjustments (Optional)
This step is optional, but can be important if you have other miscellaneous income that needs taxes withheld. Things like miscellaneous income or freelance income.
- Step 4(a) In this step if you want taxes withheld for other income (like interest, dividends or retirement income), just enter the amount of other income here. You shouldn’t include income from jobs or self-employement.
- Step 4(b) In this step if you expect to claim deductions other than the standard deduction and want to reduce your withholding, you can use the deductions worksheet on page 3 of the W-4 and enter your result here. The standard deduction for 2020 is $24,800 for married taxpayers filing jointly. It’s $12,400 for single and married filing separately taxpayers and $18,650 for those filing as head of household. Most people will typically just claim the standard deduction.
- Step 4(c) If you want any additional tax withheld from your pay each pay period, enter that amount here. When I entered some self employment income on the tax withholding estimator, it instructed me to enter the additional withholding on this line.
W-4 Step 5: Sign The W-4 Form
Make sure to sign and date the form, otherwise it’s not valid and your employer may just calculate your withholdings as a “single” person household.
Dave Ramsey On Adjusting Your Withholding
Here’s a discussion that Dave Ramsey had with a caller on his show recently about adjusting tax withholdings by updating your W-4.
Are you withholding too much onyour paycheck? Are you considering filling out a new W-4 to give yourself a pay raise? Do you prefer getting a large refund at the end of the year?
I changed my withholding to 2 last year, and my wife claimed 0. Well this year we got back a whopping $3 refund. I’m happy we didn’t give the government a loan like you described, and I was pleased because we put that money towards paying off debt. But its hard to be happy around this time of year when you hear everyone else getting thousand dollar refunds.
Our return this year was about $6k; more than ever before. It was due to a combination of things so we thought it was time to take the dollars up front as of February. I changed my witholding from 1 to 6 (my wife doesn’t work) and love getting the extra $175/month more. Plus, we’ve left ourselves enough cushion so that we’ll probably get a reasonable return next year. Don’t mind lending a little to the gov’t but would be horrified to end of paying anything around April 15th. And this way we get a small treat around tax time!
I want to learn from you! lol Teach me this sorcery. :P
Seriously though. This tax stuff has always been way over my head. Im over here trying to look up various articles about it all but Im finding myself running around in circles with it. Maybe I should just go to a tax place and they can give me the run down on it all. Anyway, great job with everything!
Dont pay for someone to do your taxes.. go to:
https://www.irs.gov/individuals/irs-withholding-calculator
http://www.moneychimp.com/features/tax_calculator.htm
If you do not know after this 2 sites … well, then you should pay for someone hehehe!
I know that on PF blogs it is tantamount to sacrilage to admit that I enjoy getting a large refund, but the fact is, I do! DH and I find it challenging to save small amounts of money. I know what we should do, and we are diligent in most areas of our financial lives (no debt but mortgage, almost maxed on the 401k…), but if we changed our withholdings we would likely spend the extra money on more expensive date nights, more junk for the kids or fritter it away on something else. Getting back a big return is what has helped us truly pad our savings account. I know in my head that this is an interest free loan to the government, but if you figure that I would be earning 3% interest on $200 per month, I am willing to pay a $39 stupid tax to ensure that I am not foolish with the $2400 we’d get back. That’s my two cents anyways.
PS – first time I’ve stumbled on your blog – can’t wait to read more!
What?
Thank you so much for posting this! My husband and I will owe on our taxes this year because it looks like they didn’t withhold enough from his taxes each pay period, so we’re bummed. But, when you described it as an “interest free loan” to the government, I do feel a little better now. Good to know that we can make these small changes to our tax forms during the year to effect the final outcome each April– that’s the power of small for you!
Kates last blog post..Stains the World Famous Cupcake Dog
I claim single and none, with an extra $20 taken out of each check. (I get paid twice a month.) My employer insists that I am not entitled to the complete federal stimulus refund b/c I have the extra money taken out. Based on my salary, I should get $400 for the entire year, but so far each check has only been an increase of $1.86. It’s almost as though the extra money is being taken out of my base slaary and then again out of the stimulus. I know of others who work elsewhere and claim the same as I with the extra taken out, and they received around $10 stimulus for a weekly check. How can I get the payroll dept to undertsand my position? Any advice?
I heard the analogy of getting a big tax refund being similar to letting your neighbor borrow a gardening tool. You give it to him and he returns it to you next year, except that now the tool is rusty, makes some funny noises, and doesn’t quite do as excellent of a job as it once did. Same with letting the gov’t borrow money for a year – with an increasing cost of living (inflation) averaging about 3% over the long haul, what one dollar buys one year may not buy the same amount the next year.
If this is the only possibly way that some people can, then I’m ok with it. But as a financial advisor, I really try to get clients to save the weekly/monthly dollar amount difference that can be adjusted from their withholding into a savings account somewhere.
Hey Peter,
Great post and thanks for the link to the IRS Withholding Calculator. I see this problem over and over and over again. Folks will be struggling to make ends meet and start dumping debt, then they get a $6,000 tax refund. That’s $500 a month they were missing out on throughout the year!
I think taxes bother us so much that we just want to get them over with, and we don’t necessarily look at the situation to determine if we could do something different for our own benefit.
How do you convert the old “exemptions” into a dollar amount? In 2019 I changed to 5 exemptions and still getting a good tax return. I want to get my tax return as close to zero as possible. I have spoken to 2 CPA’s and they can’t answer me. Plus my paychecks are not the same, it varies every 3 checks.
Ralph, I’m not sure why you’re taking issue with the article? You’d be surprised at how many people actually need advice on how to adjust their withholding, it may seem common sense to some folks like you, but others who don’t deal with taxes all the time sometimes need a couple of pointers on how to follow through with something like this.
I’m also not sure why you take issue with the audio from Dave Ramsey talking about adjusting withholding. I thought it was pertinent to the issue at hand, and I agree with the advice he gives?
thanks for stopping by..
Hello,
My husband sometimes has his boss take no taxes out of his check without filing a w-4. They only take out for FICA.
I always though that you needed to fill out a new w-4 with more dependents to get more money from your pay check. Can you tell me if what his boss is doing the right way to do this. We are taking a vacation soon and wanted to have some extra spending money. We do not see eye to eye on this. Can you give me an answer.
Sincerely,
Karie Johnson
Thats what im wanting to do as well. I have property taxes and homeowners insurance coming up. So i would like to have no taxes taking out this next two checks. If you got any info on that please share with me. Thank you dear. Sincerely john!!
Well why is it that I myself as a single person with no children pay about $150 each check in taxes then when tax season comes I only get $500 back that’s ridiculous. The persons with no job and about 10 kids (overly exaggerating) do their taxes and get back thousands of dollars when they haven’t paid a thing throughout the year. And it’s the government that’s taking care of them and their children, well really is tax payers. Can somebody please make some of that sense up to us.
It’s Tax Credit for each child. Each child get’s Tax credit of $1000 – $2000 per child.
this is based on how much money you make a year. all the tax credit does is bring down your income so the less income shown the more the amount given back.
Danielle B & Peter A.
Yes it is ridiculous. I am in the exact same boat! I’m not even keeping my head above water every month. I’m not earning enough just to pay utility, rent gas for the car. They take out so much money in taxes from every check (almost $150). They are getting a few thousand from me a year!!! And only give back $400 -I have had to go to food banks just to survive. How is this right or fair?? Is it better to have them take out less each month? I can’t afford to owe at the end of the year though. Thanks for any info.
I need help to figure out how to get less taken out of my paycheck right now I think I’m claiming to but when my paycheck gross is 1500 I only take home about 1200 so how do I make it more I’m taking home do I claim more than two on my W-4 I need to know I need to turn it in by tomorrow Thursday, June 1 if you can Give me advice that will be amazing thank you
Love the post and would like to share it but just wanted to point out the typo in the headline. Adjusting is missing the “j”.
Thanks
Jeff
Wow, thanks for pointing that out. Not sure how I missed that for so long. I believe it should be fixed now.
I changed my tax exemptions to 10! Before you freak out, yes I know that my employer is hardly taking any money out each month for taxes and yes I will owe at the end of the year. You think I’m crazy don’t you? The reason is that I put that extra I get into a high interest savings account. I don’t touch it!! At the end of the year I file my taxes and (Shocker) I owe. Not to worry, I put that money away and now I can give them the amount I owed but I now get to keep whatever is left over and all the interest I saved throughout the year. If you know you will get a refund at the end of the year why don’t you increase your exemptions to reduce the amount the employer takes out and put that money into the bank then you still get your “refund” and you get a little interest.
Hi Jessica, can you recommend the bank that offers high savings account rates?
My federal deductions were for 2 dependents whole my state showed 6 as forms were completed incorrectly. Is there anyway I can get my overpayment in taxes back before tax season next year???
Hi, how to get less tax deductions from a salary of 47000/yr? too many taxes in california
Hi!
So what do we do now with the new W-4?
Since they don’t do allowances anymore?
I made 100K in 2018 and now making 110K, and a getting the same exact amount in my check basically.
How can I adjust my W-4 to get more money back in my check? I’m looking at a refund but don’t need that much back!
What line would I add for withholding? Thanks!
The instructions for the new 2020 form are now added up above. I’d recommend going through the tax withholding estimator and finding out what it recommends doing. Good luck!
Exactly! No one answers exactly what your should put on this new form in lieu of the former allowances to get more out of your paycheck. We need it spelled out.
If you want to reduce the withholding amount per paycheck (basically adding more money to your pocket when you get paid), you would include that additional amount in line 4B of the new W-4 form under Deductions.
Thanks for the reminder article. This is something I need to do. As my kids got older, I haven’t adjusted my w-4. In earlier years I had it just about right, I might have to pay a couple hundred bucks or might get a refund for about the same. As they grow older though and I lost the child tax credits I needed to make some adjustments which haven’t been done yet. Now I’m looking at paying a hefty tax bill, but I guess that’s better than giving the government a big tax free loan.
I work in Sales and my income is up and down. In the past, I have claimed 99 on 2 of my check per year. If I can’t, when I do have a good month, I am taxed like I make this every month. How can I claim this on the new Tax form?
Wondering if someone can help me out. I always used the old w4 prior to 2020. With my work we can change it online, so it was pretty easy. If I wanted more federal taxes taken out each check, I would make my exemptions 2. If I wanted less taxes taken out each month and be able to take home more, I would change the exemptions to 9 or something like that. I didn’t touch my w4 in 2020 until last month-April- not knowing the form changed, but since I did, now I am forced to use the new w4, and filled out the new w4 wrong as I noticed they took out about 300 more in fed taxes than I would have liked, so I am trying to figure the easiest way to get the amount back up to about 300 more take home per check- I get paid once a month.
How it was set up on my part when I received 300 less was that I had it at 4,000.00 on claim dependents step 3 since I have 2 kids . Also, I checked off my spouse and I both work. $A, B, and C were at 0.
Would it be easier to to:
A- adjust the 4,000 to a higher amount, ( side note, if I put say 18,000, would that be the equivalent of putting a 9 exemption on the old w-4?
B- Make it where it looks like only I work and not my wife as well
C- Put an amount in deductions line 4b? And if so, what amount?? ( I know its not as cut and dry as with with-holdings line C where if you want 100 dollars each month extra with held, you just put 100.00.) For line 4b deductions, if I put say 1000 dollars, about how much more take home would that be per check?
I gross about 7380 per check monthly- they took out ab 885 fed and I want it about 585 fed, – I have a lot of deductions over standard deduction.
Thanks for any help and your time.
It’s seems strange to me that you can’t finagle your W4 form to only allow whatever withholding you would prefer, since according to my knowledge income tax is only due at the end of the year, not after each paycheck; so people who are good with their money should be able to functionally opt out, or opt in, to withholding as they see fit, and then just pay their taxes when they’re due, if necessary.
However, with the new form, you swear under ‘penalties of perjury’ that all the info you’ve given on the form is accurate to your knowledge. If it’s not, you’re ‘technically’ guilty of a crime that has no Statutes of Limitation. So to manipulate withholding in order to opt out is a crime that could really bite you in the butt at any time in the future!
All in all, it seems that ‘especially’ this 2020 W4 system was designed to make it harder to opt out. And that the only way to decrease your withholding is to mark yourself as being in a higher standard deduction bracket, add bunches of fake dependants, or add extra estimated deductions, until it’s where you want it, or wrongly claim yourself ‘exempt’ from taxes by writing Exempt under 4(c) and doing that again for each following year.
I can’t figure out how to change what is being withheld in the new form.
I can’t change my number. and the options at the bottom only allow for me to have MORE withheld. Is there no way to change how much is being taken out with the 2020 form at all, only increase??
Reading this helpful article plus many of the comments, plus having performed taxes and payroll over 10 years, under this new form, this is no legal nor legislate way to lower the amount of taxes taken out unless you have dependent kids or invent fake credits. For the biblical single person: the equivalent to single zero is only option.
I have 2 clients who are in their 20’s, single and no kids and not big salaries and there is no way to help them Lower their paycheck taxes.
so im trying to figure out how to fill this out for married filing joint only 1 job by me other person can’t work. the same as 2 allowances part i can’t figure out what to put where. they are taking out to little due to it shows Married Both Spouses Working. not sure why its showing that cause i marked married filing joint and didn’t mark anything in step 2. please help
I’m trying to figure out why they not taking federal taxes out my payroll check.
Why are there no standard deductions in Section 1c on form W4 for “over 65” and/or “blind”, or in the deductions worksheet on page 3?
I must be blind because I do not see any place to put exemptions — even thought I read that it was taken away for transparency and ease of filling out form. Well, the form is harder to fill out than before and all the gibber gabber makes it harder for me to understand. Okay, moving along …
I did the IRS W-4 online and it says I will get a refund of more than 7k for tax year 2020. What I want more than that refund is that money in my bi-weekly pay check. I can put it in my 401k and have my employer match it (I had this epiphany this weekend. David Ramsey would be proud!).
If anyone can point my browser to the exemption box, I’d appreciate it; if not, I’ll figure it out.
Mon Dieu, la vie n’est pas une rose!!
Is there any way to fill out the new W-4 so that it takes out LESS tax? I’m a single mom with two children under 17 and no childcare expenses. If I fill out the W-4 with only 2 dependents, I still get a giant refund because of child tax credits and EIC. Would sure like to have less coming out of my checks each pay period, but I don’t see anywhere on the worksheet to enter something truthful that would do that.
Thank you so much for this information ?. I’m in a new tax bracket now and I’m not getting the cute $4,000 in tax refund no more ? so I definitely need to adjust my w4.