Maximize your Paycheck with Tech
Technology also creates numerous efficiencies that most people are not aware of. One interesting benefit is using an online tool
such as Turbo Tax's Tax Caster in order to calculate what your expected Tax return would be for the upcoming year. This is important
so you are able to understand what your estimated taxes will be for the year and properly withhold the correct amount on your W4.
Your W4 is the form [provided by your employer] that allows you to adjust how much money is withheld from your paycheck each time you get paid.
This is very beneficial, let's assume you are receiving a huge refund at the end of the year, that just means you are withholding [allowing the
government to keep] way too much money throughout the year. When you adjust your withholding to the correct amount, most people will think they got a raise.
To make this happen, first calculate your personal tax situation using the Turbo Tax Caster web app. But when you enter all your numbers under Income, for this exercise, leave the Total Federal Withholding set to 0. Once you are completed entering all your numbers to the best of your knowledge, you should have a large negative refund, don't worry.
Next, take that large negative number and make it positive, so turn -$5,000 to $5,000, then divide that number by the number of paychecks you get during the course of the year. If you are paid twice a month, you divide by 24, if it's monthly, divide by 12, bi-weekly divides by 26. This dollar value equates to how much you need to be withholding each time you get paid. If that number is much lower than your current federal withholding, then you need to adjust your W4 with your job. This will give you a larger periodic paycheck. Basically, the more allowances you enter the less they take out of your check. There is a good website put out by the IRS that will help you calculate this number with respect to allowances on your W4, it is called the Circular E, just go down to the correct table that matches your pay period and marital status. You can also adjust your allowances by randomly guessing a higher number than your current value, wait a few weeks for check to come in, then re-adjust if need be.
BOTTOM LINE: When you receive a HUGE tax refund at the end of the year, that is just the government making interest off YOUR money during the year, then giving it back to you and calling it free money or a refund. The ideal situation is a tiny return or payment so that you KEEP all your money during the year.