Updated: Mar 05, 2024

How to Adjust Tax Withholding to Get More Money Per Paycheck

Learn how to calculate and adjust your tax withholding with the Form W-4 so that you can get more money per paycheck instead of a large tax refund every year.
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Every year, it seems like you get a tax refund.

It's a nice chunk of money. But have you ever wondered why you always receive a refund?

You usually get a tax refund because you paid too much taxes throughout the year.

You might think that getting a large refund is a good thing.

If you have trouble saving money, then a tax refund at an expected time of year may be useful for you.

However, when you take this approach to saving, realize that you are letting the government hold on to your hard-earned money without the benefits of earning interest on this “loan” to them.

You can get paid more per paycheck throughout the year instead of waiting for a refund after you file your tax returns.

To do this, you must adjust the tax withheld from every paycheck.

What is Tax Withholding?

Tax withholding is the federal income tax deducted from your paycheck each pay period if you are an employee.

Your withholding is based on the amount of money that you earn and the information that you give your employer when you complete your W-4 form.

A W-4 is a standard form published by the IRS that lets you tell your employer how much money you want to be taken out of your paycheck each pay period.

You can choose to have a lot of money taken out each week, or you can choose to have a smaller amount of money taken out each pay period.

You can even choose to be exempt from income withholding tax.

In this case, no federal income taxes will be taken out of your paycheck.

You will want to be careful with this option, as you could owe quite a bit of money to the IRS if you underpay income taxes throughout the year.

If you get confused when completing your W-4, the IRS provides a free withholding calculator to help determine the amount of money that should be taken out of your paycheck for income tax payments.

Why Adjust Your Tax Withholding

You don’t want to miss out on earning interest on your money or be penalized for being short on cash throughout the year (which means you may pay more interest and late fees on your debt obligations or bills.)

For example, if you were to save up $1,000 to $2,000 at a bank that will pay 1% or 2% on your savings balance, you would actually earn extra money just by keeping your money in the bank (instead of with the government.)

But when you overpay on your income taxes, you are “saving” money with the government but aren't earning any interest on those overpayments.  

You may be paying interest on debt obligations like loans or credit cards while the government holds your money without paying you any interest.

It doesn't have to be this way.

Adjust your tax withholding to get more money per paycheck. This financial maneuver can affect your personal cash flow -- making a difference if you're in a bind or need more money.

You don’t want so little deducted from your check that when it's time for you to file your income taxes, you will end up owing the IRS.

If it's more money than you can come up with, you could be charged penalties and interest for what you owe the IRS.

Finally, it's worth noting that when you owe the IRS, you must file by the normal tax filing deadline.

If you don't, your tax payments may be considered late by the IRS.  You may incur penalties that include failure to file, failure to pay, and additional interest charges.

However, if you don't owe any money to the IRS, you do not have to meet the regular filing deadline, and your tax refund will be forfeited if you wait longer than three years to file for a given tax period.

How to Adjust Your Tax Withholding

To adjust your tax withholding, you must complete a new W-4 form with your employer.

You can ask your employer for a copy of this form or obtain it directly from the IRS website.

Nowadays, many employers even allow you to adjust your withholding with an online version of the W-4 form through an employee web portal. This can make it easy to access and update the form as often as needed.

Use the IRS withholding calculator to help you determine the best way to complete this form based on your financial goals.

This calculator will ask you questions regarding your financial details:

  • What filing status will you use on your Income Tax Return? (i.e., Single, Married filing joint return, Married filing separate return, Head of Household,  Qualifying widow(er))
  • Can someone else claim you as a dependent on his or her tax return?
  • Total number of jobs
  • Total number of dependents
  • Whether or not you contribute to a tax-deferred retirement plan
  • If you/your spouse will be 65 or over by a certain date
  • Details around Child and Dependent Care Credit/Child Tax Credit/Earned Income Tax Credit/Other Credits
  • Gross wages, salary, and tips you expect to receive in the current tax year, plus any bonuses or other income
  • Federal tax payments from previous pay periods
  • How often you are paid
  • Estimate of your deductions (if you will use them)

IRS suggestion

Once you enter all the information the calculator requests, you will get a suggestion from the IRS based on your answers that looks something like this:

Based on the information you previously entered, your anticipated income tax is $_________.  If you do not change your current withholding arrangement, you will have $_________ withheld, resulting in an overpayment/underpayment of $_________ when you file your return.

Then, you will get a recommendation on how to update your W-4 to pay just the right amount:

  • You should enter the following number of allowances on line 5 of your Form W-4:
    • For the only job you entered (which has a projected salary of $XXX,XXX): ______  allowances.

  • Check the “SINGLE/MARRIED/Married, but withhold at higher Single rate.” box on your Form W-4.

In this scenario:

The IRS suggests that claiming are a certain amount of deductions will meet the income tax obligations sufficient (though you may get a small refund.)

This will ensure you get the least amount taken from your paycheck while still meeting your income tax payment requirements.

However, if you decide that you want more money taken out of each paycheck to get a larger tax refund each year, you would choose a smaller amount of deductions.

Keep in mind that the accuracy of this calculator depends on the accuracy of the information that you give it.

If you are unsure about some of the options presented in the calculator, consult with a tax professional who can give you proper guidance on what options to choose.

This way, the calculator can give you the best suggestions for the number of deductions and what boxes to check on your W-4.

When to Make Adjustments

The IRS suggests that, as an employee, you should check your withholding when your life circumstances change.

Every year, you should check on your income tax withholding to make sure that you are on track to pay the proper amount of income taxes and when you want to pay it —  that is, either throughout the year or during the end of the income tax filing season.

If you have a more complex tax situation, you may need to double-check your withholding. The IRS suggests the following group of people may fall under this category:

  • Two-income families.
  • People work two or more jobs or only for part of the year.
  • People with children who claim credits such as the Child Tax Credit.
  • People with older dependents, including children age 17 or older.
  • People who itemized deductions
  • People with high incomes and more complex tax returns.
  • People with large tax refunds or large tax bills

Special circumstances

As a general rule:

You should not have to adjust it very often.

But there are some circumstances when you may want to adjust your tax withholding:

  • There are changes in tax legislation
  • Your tax situation becomes more complicated
  • You have a large change in income due to either job loss or receiving additional income from, say, an inheritance or the sale of an asset (stock, business, real estate, etc.)
  • You contribute more (or less) to tax-deferred retirement accounts in a given year
  • You receive an additional 1099 income
  • You have a large financial loss or expense of some sort (personal or business)
  • You have another dependent to claim
  • You want to adjust your income for a particular pay period

Overall, adjusting your tax withholding can be a cash management tool that can help you plan better for your financial goals.

You have to know what your preferences are in terms of getting more money per paycheck or having a larger refund when you file your income taxes.

Either way, consult with a professional who can give you proper guidance on how you should adjust your tax withholding for your particular financial needs.

Retirement Accounts

As you explore adjusting your tax withholding to boost your paycheck size, it’s essential to consider the broader horizon of tax-efficient saving strategies. One such strategy revolves around Individual Retirement Accounts (IRA). By contributing to an IRA, you prepare for a more secure future and potentially reduce your current tax liability, effectively increasing the amount of money you take home now and in retirement.

Why Consider an IRA?

Contributing to an IRA can serve as a dual-purpose financial strategy: it aids in building your retirement nest egg while offering possible tax deductions that can lower your taxable income. Whether you opt for a Traditional IRA, which may offer tax deductions now, or a Roth IRA, with its tax-free growth and withdrawals in retirement, integrating an IRA into your tax planning can have long-term benefits.

Explore the Best IRA Options for Your Tax Strategy

To assist you in making the most informed decision, we've compiled a rate table of the top IRA Tax accounts available. This table will provide you with a clear comparison of rates, benefits, and features to help you choose the IRA best suited to your financial goals and tax situation.