Do-It-Yourself Pay Raise for the Holidays

Well, now that we're in October, we can start talking about the holidays: Halloween (kind of a "holiday", though not a big one for me), Thanksgiving, Hanukkah, Christmas, and New Year's. Wow, I never realized how many holidays we had in such a short amount of time until typing them out. No wonder the holiday season is always so hectic.

Anyway, here's a way you can increase your pay just in time to help you afford all those parties and presents associated with this season. It's from Kiplinger's who suggest you give yourself a bigger paycheck by adjusting your withholding. Their thoughts:

The potential for workers to beef up their paychecks is tantalizingly clear in the latest IRS statistics acquired by Kiplinger. As of September 15, 98.9 million Americans had received refunds triggered by their 2005 tax returns. The average refund: $2,202.

This is proof positive that workers had too much tax withheld in 2005. And there is absolutely no reason to think the pattern isn't continuing in 2006.

That means the average taxpayer is having nearly $185 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?

If you had listened to me earlier in the year, this wouldn't be an issue for you. But maybe you weren't a reader of Free Money Finance then, so I'll cut you a break. ;-)

Anyway, Kiplinger's gives a short and simple tip on how to decrease your withholding:

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 are claiming. You can claim an allowance for yourself, your spouse and your dependents, for example. Each allowance basically makes $3,300 of your annual income off-limits for withholding.

Claiming extra allowances on your W-4 will automatically push down withholding, which in turn will push up your take-home pay. You'll enjoy the instant gratification of a do-it-yourself pay raise.

Now let me say that this tip is worthwhile only if you are having too much taken out of your paycheck. If you're right on with you're withholding, don't try to pull a fast one and get some extra money now, just to owe more later. It could result in some tax penalties for you.

For the rest of you, who out there couldn't use a bit of extra money for the holiday season? Maybe this could be the difference between paying cash for presents and racking up tons of credit card debt. If so, then what are you waiting for -- get your W-4 changed today!!!!

Comments

[Blaine Moore (First Time Homeowner)]

I have not gotten a tax rebate in years. I usually owe between $50 and $100 in taxes, which I figure is just about where I want to be.

This year I have no idea what my taxes are going to look like, though. Between buying a house, getting married, and my wife quitting her job 3/4 of the way through the year I have no idea what we are going to owe on our tax bill. I figure that I'll make sure that we have plenty of money stored in case we owe money (doubtful) and will see what a CPA says at the end of the year for how we file, and then I will change my withholdings next year once I've seen what the difference is.

I figure that if I have too much money withheld, it was just not getting any interest for a few months and it will make a nice chunk towards our mortgage when it comes through.

[Foobarista]

My wife's self-employed, so we "escrow" about 40% of her pay in a tax savings account, that is saved at our credit union. I make sure to withhold enough each year out of my pay to hit the "safe harbor" to avoid penalties, and we pay what's left out of the account. We also use the money to finish funding her self-employed 401K once we know her profit for the year, and anything that's left is our "refund" - which goes into long-term taxable investments.

At some point, we may do quarterly payments instead of a ton of withholding out of my paycheck, but I'd rather avoid this as long as possible.