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Every year I get a tax refund of $8,000 to $10,000 and I do not want that, I want to take that money home through the year. What can I do to do this; I know I need to change my W-4 but what do I do?
Do you know how you are currently filling out your W-4 form? Do you have it filled out as single or married, and how many allowances are you claiming?
Married with three.
For every allowance that you claim on your W-4 form, in effect what that does is take $3,500 from your annual salary that is not considered for tax. So as an example, if you would raise your allowances to 13 instead of 3, then the payroll software is designed so that an additional $35,000 of your annual income would not be taxed. If you are in the 25% tax bracket, that means your take-home pay would be increased by approximately $8,750 per year. If you were in the 15% tax bracket, you take-home pay would be increased by approximately $5,250 per year.
So it depends on which tax bracket you are in as to how many personal allowances you should claim. So you should adjust your W-4 form accordingly. Keep in mind that the W-4 form does not have to list the actual number of allowances that you end up claiming on your tax return. The W-4 is strictly an informational form for the purpose of figuring how much tax to withhold from your check, so if you need to raise the number of allowances to 10 or 13 to cover your situation, then that is perfectly acceptable.
Allowance means dependents right?
Allowances are almost the same thing as dependents. The only difference is that if you are married with two children, then basically when you file your return, you have two personal allowances and two dependents. They each receive the $3,500 credit, but they just have different terms applied to them. The W-4 classifies everything as an "allowance" but it has the same net effect.