How Your Tax Withholdings Can Teach You How to Save Money
With tax season in full swing, people are finding themselves either happily or unpleasantly surprised with their refund. However, many people are unaware of a method that can increase the size of your refund and teach you how to save money at the same time. By adding money to the ‘additional withholding’ line, you’re taking more money out of your paycheck, learning to save and receiving a greater tax return when tax season rolls around. Here’s how it works:
Draw up a quick budget. Estimate your monthly rent, utilities, food, personal care and entertainment expenses.
Calculate a reasonable percentage of your per-period income. Decide how much you want to withhold, divide the number of hours in a pay period by eight, and then multiply the result by your hourly wage.
Write your calculation down on line 6 of your W-4. This strategy works best for people who want to learn to save and are filing non-exempt with one personal allowance.
It’s hard to miss money that was never in your check to begin with. When tax time comes, your big refund will show you how much you can save by only taking a little extra out of each paycheck.
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*To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or tax related matter.