How to Adjust Withholding to Receive Less in Tax Returns
Taxpayers who receive an annual tax refund can adjust their withholding to avoid receiving money back from the Internal Revenue Service at the end of the tax year. Since the IRS does not typically pay interest on taxpayers' accrued tax refunds, you are losing investment opportunities to accrue interest on their earnings. Taxpayers can use IRS Form W-4 to adjust their federal income tax withholding. The Employee's Withholding Allowance Certificate form allows employers to deduct income taxes from an employee's paycheck. Generally, the higher an employee's allowances on her IRS Form W-4, the more she will receive each paycheck in net earnings.
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Instructions
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Ask your employer for a Form W-4. Your employer should have extra copies of these forms. Employers are required to have each of their employees complete a form at hiring. Employees complete this form to notify their employer of how much they should withhold as federal income tax deductions from each of their paychecks.
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Ask your employer for your most recently completed Form W-4. Employers are required to retain these forms as part of their business employment records and they do not send them to the IRS after their employees complete them. Once you complete your new or amended W-4, your employer uses the form to adjust the federal withholding from your paycheck.
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Review your prior Form W-4. Add an additional allowance from what you previously included in line 5. For instance, if you claimed one allowance, you can claim an additional allowance to receive more money each paycheck.
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Access the IRS tax calculator to estimate the correct amount that you need withheld to avoid receiving an annual income tax refund. You can find the calculator on the IRS website (see Resources).
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Find the IRS Form W-4 Instructions and Worksheet. Use it with the tax calculator to determine how much you should ask your employer to withhold from each of your paychecks.
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Insert your new withholding allowance total on line 5. Line 6 of Form W-4 contains a line that you may use to direct your employer to withhold a specific dollar figure.
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Return the completed new W-4 Form to your employer. Employers must begin implementing the allowance changes by your next pay date.
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Tips & Warnings
The IRS recommends adjusting your allowances on Form W-4 whenever you experience life changes, such as, divorce or marriage or when your filing situation changes. Your filing situation may change if your spouse loses her job, you have a child or you find a second job.
If you withhold too little and claim too many allowances on your Form W-4, the IRS may assess penalties for failing to withhold a sufficient amount for federal income tax payments.
