Our last post, titled The Tax Refund Dilemma, has met with a large interest. We’ve received quite a few questions asking: How do I know how many allowances to claim in order to keep as much money as I can in my paycheck, but not end up owing the IRS?”
After doing some research we found a great summary article by Turbotax that has a great simple formula for helping you keep the most of your hard earned money in your monthly paycheck while still receiving a small refund at the end of the year instead of having to pay taxes.
We’ve included a link to the article, but here is a quick summary for you:
– The average tax refund in 2012 was over $2800 and would give you additional $240 per month to cover budget gaps, pay off debts, or build your savings.
– In order to start receiving more money on a monthly basis, simply update your W-4 form with your employer.
– Your HR department will send you a blank W-4, together with a worksheet you can use to calculate your allowances.
– There is a withholding calculator published on the IRS website that you can use to calculate how much money you should withhold.
– Turbotax came up with their own simple formula that will help you estimate how many allowance you could be adding to your W-4 and still end up in the black with the IRS at the end of the year.
Go ahead and use either the IRS calculator or the Turbotax formula. We’d love to hear from you how many additional dollars you will be receiving each month! What would you do with this newly-found income?