Getting a Raise in 2021 Without Asking for One
Changing your W-4 form at work could get you more money if you got a big tax refund last year. Especially while we’re going through a pandemic, getting pay raises can be hard to get. It could be just a matter of filling out a form if you received a big tax refund this year.
The form we are talking about here is the W-4 form, which greatly influences how much tax comes out of your paycheck. According to the IRS, having too much tax withheld routinely or overpaying your income taxes throughout the year is the cause of big tax refunds in most cases. And thus, it can be solved by simply changing what’s on your W-4 form. This helps you skip the months-long wait for a tax refund and instead increase your monthly take-home pay.
Money now versus later
Having more money now than later can be a game-changer for families struggling to pay bills. For instance, if you know someone that had a huge refund the previous year but they are facing a tight situation with the day-to-day expenses, groceries, and stuff, then you must recommend them to adjust the w-4 to have less withheld so they would have more in their check every two weeks. By doing this, their regular expenses would be a little bit more manageable.
Finding the link between what’s on a W-4 and day-to-day financial life can be hard. There are cases where people might rack up credit card debt little by little every month because of trouble making ends meet. In such a case, it is obvious that the root of the problem was the withholding, but they assume thinking they’re just overspending.
Taking control of your paycheck
To decide and take a call on how much to withhold, you must first estimate how much income tax you will owe for the year. For this, you can look up an online tax estimator online, or a tax professional could help you too. You could also look at your previous year’s tax return if your financial situation has not changed much in the previous year. By doing this, you can get an idea of whether or not you are withholding too much.
It would be a nice idea to take the income from the previous year’s tax return and compare it to your pay stub since there has not been a tremendous amount of personal tax rule changes in the last year. Also, to help do the math, you can use the “withholding estimator,” which you can find on the IRS website.
You can fill out a new W-4 and reduce your withholdings to cover just what you expect to owe if what is coming out of your paychecks will be more than your estimated tax liability for the year. The best part about W-4 is that you can change it whenever you want. And all you have to do is complete the form available on the IRS website and give it to your employer.
By just adjusting that W-4, it is quite easy to get control of it and get pretty close to what you would owe. Once you have changed your withholdings, you can review your paycheck to ensure your take-home pay is the same as what you were expecting. And still, if it is not the same, you can fill out another W-4 and adjust things again.
Although you have to be careful since you should not lower your withholding, so you get a bigger check but end up owing the government money that you don’t possess.
Why the Form W-4?
The income tax is something which you have to pay-as-you-earn. The minute you get paid, the IRS wants its share, and that’s the reason why the Form W-4 exists. Basically, it is a form that lets your employer know how much tax is to be withheld from each of your paychecks.
Your employer remits that amount to the IRS on your behalf, and at the end of the year, your employer will send you a W-2 showing (among other things) how much it withheld for you that year.
One of the things to keep in mind when completing your Form W-4 is that you can change information on your W-4 as needed, and if you start a new job and you’re making the same pay, for instance, you can check the box on 2C for both of these jobs.
Your W-4 doesn’t go to the IRS but instead it goes to your employer, who will keep the form on file for at least four years when you complete it. It is important to complete your W-4 form correctly, or you could end up with a higher tax bill since the IRS reviews withholdings.