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Create Your Own Stimulus Package by Adjusting Your Tax Withholding
By Guest_BloggerGuest Blogger(view all posts by Guest_Blogger)
at 10:57AM Monday February 21, 2011
under
Personal Finance
As we learned at the close of last year, there was a small stimulus added to the tax package that would give each person a discount of 2% on their Social Security payments. Depending on your salary, this 2% reduction could be as much as two thousand dollars in your pocket over the course of the year. For most, it'll be a more modest increase.
Fortunately, there is another way for you to give yourself a stimulus: Adjust your withholding. When you prepare your taxes this year, do you expect to get a large refund? The average tax refund for the 2009 tax year was over $3,000. That is easily more than what anyone would get with the 2% stimulus. $3,000 a year amounts to $250 a month and it doesn't even matter which tax brackets you're in. Wouldn't you like that in your pocket, rather than in Uncle Sam's for twelve months?
The only solution to this is to adjust your withholding and I'll explain how you do that.
You'll need to get a copy of the Form W-4, which you can download online or get from your employer. This tells your HR/Payroll department how much to withhold for taxes on your paycheck. As you can see on the form, it's really really simple--which is why people end up with huge refunds. With the litany of deductions, credits, and other adjustments to income, this little form doesn't adequately capture the whole picture if you only follow its limited instructions.
Next, use the IRS Withholding Calculator to help figure out how many exemptions to claim. Be sure to have your most recent pay stubs and a copy of your most recent income tax return.
Once you've filled that out, just pass it along to your company's HR and they should adjust it for you. It's as easy as that!
Fortunately, there is another way for you to give yourself a stimulus: Adjust your withholding. When you prepare your taxes this year, do you expect to get a large refund? The average tax refund for the 2009 tax year was over $3,000. That is easily more than what anyone would get with the 2% stimulus. $3,000 a year amounts to $250 a month and it doesn't even matter which tax brackets you're in. Wouldn't you like that in your pocket, rather than in Uncle Sam's for twelve months?
The only solution to this is to adjust your withholding and I'll explain how you do that.
You'll need to get a copy of the Form W-4, which you can download online or get from your employer. This tells your HR/Payroll department how much to withhold for taxes on your paycheck. As you can see on the form, it's really really simple--which is why people end up with huge refunds. With the litany of deductions, credits, and other adjustments to income, this little form doesn't adequately capture the whole picture if you only follow its limited instructions.
Next, use the IRS Withholding Calculator to help figure out how many exemptions to claim. Be sure to have your most recent pay stubs and a copy of your most recent income tax return.
Once you've filled that out, just pass it along to your company's HR and they should adjust it for you. It's as easy as that!
Jim Wang is the founder of Bargaineering, a popular personal finance blog where he chronicles his adventures in understanding the ever-changing world of money. He has been featured in the New York Times, the Baltimore Sun, US News and appeared on Marketplace Money. He is also an avid traveler, penning Wanderlust Journey, a travel blog; and a scotch addict.
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