Don’t Wait For Your Tax Refund; Increase Your Take- Home Pay Today

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Let’s face it, we can all use more in our weekly/bi-weekly/semi-monthly paychecks.

Yes, it would be difficult to walk into the boss’ office today and judiciously argue your merits for a raise with the economy in the state of disarray it is (regardless of short-term optimism).

There are, however, ways in which you can increase your net income today.

Or, just as soon as your HR Department can process the changes.

They are quite easy but do require that you give up your large tax refund which may turn some people off.

What’s more, by getting more of your income in your paychecks, you can accomplish your financial goals faster.

That last line may be just the motivation some people need to adjust the way they view their big tax refund preference  😉

Those financial goals I mentioned?

Think about this–if you have more money in your paychecks, you have more money to, let’s say, put towards paying off a credit card.

That means that you will be carrying smaller balances and therefore paying less money in interest charges.

Don’t have debt?

Then with that extra money, you can build your emergency fund faster.

Already have an emergency fund you are happy with?

Then use the extra money to contribute to your retirement plan or investment account and take advantage of the power of time particularly if you invest in dividend-paying stocks.

Whatever the case, when you have the money sooner, you have time on your side to help in whatever you hope to accomplish with your money!

So, how would you go about getting more money in your paychecks to accomplish those goals?

Let’s take a look…

You know, that little piece of paper that you filled out when you first started your job?

The worksheet that you probably had no idea what to do with but knew had to be filled out?

It’s called a W-4.

Its purpose is to tell the employer’s HR Department just how much money in Federal withholding they should take from your gross salary each payday.

Most people choose 0 allowances so that they can receive a hefty refund when they file their income tax returns, which is a huge mistake.

Some see it as “forced savings”, which to a degree is understandable if you have no self-control with regard to spending, except for one small fact:


It may be nice to see a big direct deposit in your bank account after filing your 1040 to pay off holiday spending, fund your IRA, or even fund your summer vacation but with more and more people struggling to live on current salaries, fund retirement accounts, pay down debt, etc. why would you want to forfeit the ability to have that extra money in a savings account since anything is better than earning 0% interest?

Even if you aren’t struggling, it still makes more sense to get your money sooner rather than later.

Another often overlooked method of reducing tax withholding is your employer’s Sec-125 Cafeteria Plan or Flexible Spending Account (FSA).

These vehicles are ways to pay for general health and childcare expenses such as daycare, medical insurance premiums, and most out-of-pocket medical expenses.

Under such plans, contributions are exempt from Federal, Social Security, and Medicare taxes (essentially excluded from wages in the paycheck calculations)

This way, you are still paying the same amount of money for medical and child-care expenses, however, the earnings are not being taxed, thereby leaving more money in your net pay each period.

Not all employers have established plans, so you will probably need to ask your HR Department about it or request for the issue to be looked into.

By taking advantage of such not-so-secret methods of reducing your tax withholding and planning for expenses, you effectively increase your net pay and give yourself a little extra income to hopefully get your goals accomplished in a shorter amount of time.

The thing that I can’t understand is that so many people claim to be frugal, or so money-wise that they have adjusted their habits to take advantage of every dime they have, yet some of these same people give up the use of this money simply because they want that larger inflow at tax time.

And, if someone claims to be good with managing their money, isn’t it a little nonsensical to use the excuse of “forced savings”?

Maybe someone can explain this to me…

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  1. I ramped up my exemptions to make my paycheck bigger because I always seem to take the tax return and blow it anyway. This year it’s going towards a vacation. Last year I used it to pay my daughter’s private school tuition. Getting your money when you earn it can greatly increase your progress towards goals.

    1. What you can always do is set up your retirement or savings accounts to automatically pull the additional amounts each period so you aren’t really giving yourself the opportunity to blow it.  By having it automatically taken out, you won’t really see it in your checking account and if you don’t see it you won’t miss it.

    2. I should have done that…I owe $50K now because I cashed out a 401K and didn’t take taxes out. I’ll never make that mistake again.

  2. We try to reinvest our tax return if we can. This helps max out our savings for the year. We are also big fans of the Tax Free Savings account which we have access to. 

  3. I think some people rather get a huge tax refund because it may allow them to save money in the long run.  People with poor money management skills probably should get a huge tax refund.  I agree with your point that they are giving the government an interest free loan.  But, if a person spends every dime and can’t quite get a budget right I see huge value in getting a big tax refund which allows you to pay debt or attack goals with the lump sum.

    1. My question would be if they have trouble budgeting with small amounts, what’s stopping them from blowing a big refund on junk as well?

      I’m really not so annoyed with the interest-free loan part these days, since the interest income potential is relatively low (although still better than 0%), but I’m more concerned with people not understanding how average daily balances affect the interest they pay, or how time impacts investments.  How if they get even $50 a month extra to put towards debt, the time it takes to pay off is significantly reduced.  or if they get $50 a month extra to put toward retirement, that investment has longer to grow and add to their account value.

    2. Nothing is preventing them from blowing the lump sum, but to some people large amounts of money is a huge barrier.  For example, I  can spend 20 dollars in 20  transactions without blinking, but I think hard about it when I have to spend 400 dollars at 1 time.

    1. If I could, I’d repost this once a week until people started listening to me!  Unfortunately, it wouldn’t go over too well with readers I would imagine.

    1. You’ll get no argument from me on that plan of actions Shaun.  Even in the short term, money has more value in the present than in the future.

    1. Me too. If I can get my bottom line to be +/- $200  or so on the 1040, I would consider that range to be a success.

  4. I was attempting to adjust my W-4 the other day using the IRS allowance calculator, but I just got confused and gave up. My situation is a little complicated since I know I’m leaving my job in May and I’m certain I won’t sustain a full year of income at the salary I’m at now. Is there a better way to figure out how many allowances to claim?

    And, to answer your question, I don’t mind a tax refund too much in terms of missing out on interest (which I think is relatively insignificant for me unless I’m investing), but I dislike having to wait for money that’s mine.

    1. Regarding the missing interest issue, see my response to YFS.  Interest isn’t much these days, but it’s the other things that suffer with the timing.

      It’s kind of hard to adjust allowances if there’s any uncertainty past a certain point.  You can add an additional allowance and then when you get your post-job situation assessed, make estimates if you fall short.  Or you can leave it as is, if you don’t mind the refund too much and use this year as a learning experience.  

    2. That’s a good point on interest for debt or investing. It could be a significant difference in the long run.

      I guess I’ll just sorta have to wing it with the allowances. I think I have zero claimed right now, and that just doesn’t seem right, so maybe I’ll go to one and adjust I guess.

    3. What you can do is try to estimate what your annual income would be using very aggressive estimates this way, if anything, you would still be a bit overpaid on withholding.  It would allow you to adjust your W4 for now and still get some of that money throughout the year, and if you overestimate, you get the bonus of still getting something back later.

  5. I haven’t adjusted my W-4 because I don’t know what to claim. I get a nice refund back come tax days so I know I can claim more (or is it less?) but I don’t know what the magic number is so that I don’t have to owe. I’m going to talk to my friend/accountant who is doing my taxes for me this year to see what she says. But until then…I’ll just be happy with what I have.

    1. If you get a big refund, then you would want to increase the allowances on your W-4.  Generally, for every $3000 in deductions, you can claim 1 additional allowance.  It’s very smart to get help from an experienced pro who can look at all of the figures to determine what the adjustments should be.  It’s always better to play it safe when it comes to taxes, as if you don’t follow certain rules concerning withholding, you can be subject to underpayment penalties.

    1. Yeah, I agree that it’s better to try to be as close to break-even as possible.  Of course, in certain situations it’s difficult to nail down what the net income flowing to your return would be, particularly if you have rental real estate in crazy housing markets and areas of employment issues.

  6. Great
    advice! I think many people enjoy getting a big refund and then take advantage
    of all big sales. I, personally, don’t like the idea of giving the government
    an interest free loan. The money that you have in your pocket today is worth more
    than the same amount a year from now.

  7. I will actually owe this year. At the advice of my CPA, I contacted a tax relief firm to have a Tax Attorney help me.  I’ll owe $50K, there’s no way I can write a check for that.  There’s a website that my CPA gave me that reviews tax companies.,
    I wanted to share this because the last thing you need is to get ripped off when you need help!


  8. I completely agree with you. I own a few rental properties and my accountant and I have pretty much figured out what I should claim to either break even or receive a very small refund. Money in my pocket now is better than later at 0% interest. I think people just need to be disciplined if they go with more in their pocket now and it will be a wise decision EVERYTIME!

  9. This has been my strategy for more than 25 years. Why give Uncle Sam the “use” of your money every year. I always owe them on April 15. If you plan correctly, you’re always better off.