In 2007 the cost of my medical and dental plans increased. I also signed up for employer-sponsored life insurance, (when I realized no other insurance company would approve me). I knew the costs would take a bite out of my paycheck, but I didn’t want to see my bi-weekly number dwindle.
In an effort to keep my paychecks the same size I simply increased the number of allowances on my W-4 form, (Employee’s Withholding Allowance Certificate), and faxed it off to payroll. Each allowance ensures approximately $3,300 will remain free from withholding. I only added one extra allowance. But that one allowance enabled me to pay off my rising health care costs and still get more money in each paycheck. In essence, pushing down your tax withholdings, pushes up your take home pay.
According to the IRS, 98.9 million Americans received refunds averaging $2,202. Why let Uncle Sam hold on to your money, when you could be earning interest on it?
Kiplinger’s has created a nifty little tool to help you determine just how much many allowances you should claim. To check out the calculator click here.