Fatten Your Paycheck -- And Still Get a Refund
If you adjust your withholding now, Uncle Sam will take a smaller tax bite each month and still owe you next spring.

As we hit the midyear mark, most taxpayers already have banked a healthy tax refund for next spring.
After all, the average tax refund this year was almost $2,700. Assuming it will be about the same next year (and history suggests it will be slightly higher), that means, on average, taxpayers who get refunds are letting the IRS take about $225 more out of their paychecks each month than the government deserves.
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But here's the good news: There's an easy way to put an end to that overwithholding, fatten your paychecks for the rest of 2009 and still get a tax refund next spring.

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All you have to do is file a revised Form W-4 with your employer. The information on the W-4 determines how much federal income tax is withheld from your checks. The more "allowances" you claim on the form, the less tax is withheld from your pay.
Let's go back to that average taxpayer. If he's in the 15% tax bracket -- with taxable income between $8,350 and $33,950 if he's filing a single return or between $16,700 and $67,900 if he's married filing jointly -- claiming an extra five allowances would reduce withholding by about $230 a month. He'd get an extra $230 in his paychecks each month, and the IRS would still be withholding enough to cover the tax bill on his earnings for the rest of the year. And because he's already suffered through months of overwithholding, he'd still get a tax refund of more than $1,000 next spring.
How do you know how many allowances to claim to match withholding to your actual tax bill? Worksheets that come with the W-4 will help, and you can get more detailed instructions in IRS Publication 919, How Do I Adjust My Tax Withholding? Or you can struggle through the IRS's online withholding calculator.
A quick and easy method
But we've come up with an easier way to get a fix on how many extra allowances you should be claiming. Assuming your financial situation is similar this year to what it was in 2008, just use Kiplinger.com's Tax Withholding Calculator: Answer three simple questions (you'll find the answers on the tax return you filed earlier this year), and we'll estimate how many additional allowances you deserve. Better yet, we'll tell you how much your take-home pay will increase starting next payday if you claim the allowances on a new W-4.
Our quick and easy method is designed as a rough guide, not gospel. And it's based on the assumption that your financial life in 2009 is pretty similar to your life in 2008. If you have a baby, get a new job or have an adult child who qualified as a dependent last year but no longer does, for example, the calculator won't reflect how such events will affect your tax bill and your tax withholding.
But for most Americans, it should quickly accomplish two important goals:
- Get you motivated to grab a W-4 to pinpoint how many extra allowances you should be claiming.
- Get more of your money to you as you earn it, rather than keep you waiting for a tax refund next spring.
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