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Episode Transcript

How to Adjust Your Withholding
Episode 8: February 06, 2007

Hello and welcome to Money Girl’s Quick and Dirty Tips for a Richer Life hosted by Elizabeth Carlassare.

Today’s topic is how to adjust your withholding.

Now, wait! Don’t yawn just yet. This topic might sound really dry and boring, but hang in there and listen because it can put more money in your pocket today and save you from making a free loan to Uncle Sam this year.

One exception: If you’re not an employee and don’t have taxes withheld from your paycheck, this episode doesn’t apply to you. But, you might want to keep listening anyway so you can tell your employee friends.

Most people pay the bulk of their income taxes through payroll withholding. If you don’t have enough withheld from your pay, you could end up owing the IRS when it comes time to file taxes. (In some cases, you might even end up having to pay a penalty and interest for underwithholding.)

And if you withhold too much, you’ll get a refund check after you file your taxes. While it might feel good in the moment to get a refund check, remember that that check means you made an interest-free loan to Uncle Sam. You could have kept that cash instead and invested it so you’d earn some interest on it.

If you haven’t done it already, it’s a good idea to check your withholding for 2007 and adjust it up or down as needed. You can adjust your withholding at any time. If you know you’ll owe a lot in taxes for 2006 and your tax situation is similar this year, adjust your withholding down. On the other hand, if you know you’ll get a big refund for 2006 and your situation for 2007 hasn’t changed much, you’ll want to adjust your withholding up.

You’ll also want to adjust your withholding if you recently got married or divorced, had a baby, or bought a house.

So how do you adjust your withholding? What you need is a W-4. Your employer’s payroll department should be able to give you the form. You can also find it on the IRS website and a link to a blank W-4 is provided at the end of the transcript for this episode at QDNow.com.

The form looks kind of intimidating, but adjusting your withholding is pretty straightforward. If too much tax is being taken from your paycheck, increase the number of allowances on your W-4. If too little is being withheld, reduce the number so you won’t have a big surprise tax bill for 2007.

The IRS website has a withholding calculator that’s easier to use than the W-4. If you want to check it out, you can find a link to that too at the end of the transcript for this episode.

Cha-ching! That's all for now, courtesy of Money Girl, your guide to a richer life.

If you have a question or comment you can e-mail it to money@quickanddirtytips.com. Also, check out the other QDNow podcasts: Grammar Girl, Mr. Manners, and The Traveling Avatar. Thanks for listening!

Resources

W-4 form

IRS withholding calculator

Comments (8) for How to Adjust Your Withholding | Subscribe to Comment

sibyl Says:
4/23/2008 10:56:29 AM

I dont think my withholdings are being done correctly thru my employer i am not seeing my earned income credit in my pay checks is there a away i can caculate it on line I know my withholdings and hours worked I want to see if mine will match there's we dont use a payroll company

Michael L. Says:
1/18/2008 4:46:15 PM

Money Girl - great program and website. You should consider expanding on this episode to tell people how they can adjust their withholdings and also maximize pre-tax 401k contributions simultaneously. This can be achieved by lowering your tax burden (pre-tax 401k) and not sacrificing so much income by increasing dependents (less taxes taken out). I think some listeners might be interested in that if you give an example. Keep up the good work.

Ryan S. Says:
12/18/2007 1:34:36 AM

The bummer thing for me, working two jobs, even though I claim zero and put away the max I can into my 403(b), is that at he end of the year, I -still- owe. I don't want a refund, but I'd like it to all come out even at the end...

Money Girl Says:
4/23/2007 7:18:08 PM

Hi Idgie,

According the IRS, it is no longer the case that employers need to report employees claiming more than 10 exemptions to the IRS.

You can see the details in point 12.4 here:
http://www.irs.gov/faqs/faq-kw206.html

To Your Success!
-Money Girl

Idgie Says:
2/22/2007 1:07:20 AM

Hi Money Girl,

Thanks for this info. Late last year, after using the "withholdings calculator" I tried to increase my withholdings to its recommended value (I think it was 15 or so). When I turned in my W4 to my HR department, they informed me that they would have to report this to the IRS because it was over 10 and they would possibly investigate me. Is this true? Why is this?

Thanks,
Idgie

Money Girl Says:
2/16/2007 7:30:40 PM

I'm glad you found the episode useful! :-) I do plan to do episodes on additional tax topics in the future. Thanks for the comments.

To Your Success!
-Money Girl

Jessica Says:
2/7/2007 4:34:00 PM

Thanks for the info on withholding. The link was very helpful in deciding what I need to do for the next year. I will be sure to head over to our h.r. department right away. I am just starting out in the tax world because I am now working full time. Any chance you may do more podcasts on tax filing and such? I would love to hear them.

Flash Says:
2/7/2007 6:46:43 AM

This podcast was added to iTunes with the number 007 and it should have been 008. Now there are two 007s listed. For some reason this really bothers me. (yes i do listen to grammar girl too--i nitpick.) Thought you might want to know and I didn't see an "Email Me" link.